66 FR 45664, August 29, 2001 A-580-601 ARP:1/1/99-12/31/99 Public Document Office IV, Group II MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Administrative Review of Top-of-the-Stove Stainless Cooking Ware from Korea; Final Results Summary We have analyzed the comments and rebuttal comments of interested parties in the 1999 administrative review of the antidumping duty order covering top-of-the-stove stainless steel cooking ware from Korea. As a result of our analysis, we have made changes from our preliminary results. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments and rebuttal comments from parties: 1. Model Match Methodology 2. Circumstance of Sale Adjustment for Commissions Incurred on Dong Won Sales in Canada 3. Home Market Inland Freight Adjustment for Daelim 4. Constructed Value Selling Expenses for Dong Won and Daelim 5. Imputed Inventory Carrying Costs for Dong Won and Daelim 6. Weighted-Average Third-Country Expenses for Dong Won 7. Conversion of Third-Country Expenses from Korean Won to U.S. Dollars for Dong Won 8. Matching Factors with Respect to Don Wong's Products 9. Ministerial Error in Daelim's Margin Program Regarding Net interest Expense for the Calculation of Constructed Value Background On February 23, 2001, the Department of Commerce (the Department) published the preliminary results of administrative review of the antidumping duty order on top-of-the-stove stainless steel cooking ware from Korea. See Top-of-the-Stove Stainless Steel Cooking Ware from Korea: Preliminary Results and Recission, in Part, of Antidumping Duty Administrative Revew, 66 FR 11259 (February 23, 2001) (Preliminary Results). This review covers twenty-seven manufacturers of subject merchandise: Daelim Trading Co., Ltd. (Daelim), Dong Won Metal Co., Ltd. (Dong Won), Chefline Corporation (Chefline), Sam Yeung Ind. Co., Ltd. (Samyeung), Namyang Kitchenflower Co., Ltd. (Namyang), Kyung-Dong Industrial Co., Ltd. (Kyung-Dong), Ssang Yong Ind. Co., Ltd.(Ssangyong), O. Bok Stainless Steel Co., Ltd. (O. Bok), Dong Hwa Stainless Steel Co., Ltd. (Dong Hwa), Il Shin Co., Ltd. (Il Shin), Hai Dong Stainless Steel Ind. Co., Ltd. (Hai Dong), Han Il Stainless Steel Ind. Co., Ltd. (Han Il), Bae Chin Metal Ind. Co. (Bae Chin), East One Co., Ltd. (East One), Charming Art Co., Ltd. (Charming Art), Poong Kang Ind. Co., Ltd. ( Poong Kang), Won Jin Ind. Co., Ltd. (Won Jin), Wonkwang Inc. (Wonkwang), Sungjin International Inc. (Sungjin), Sae Kwang Aluminum Co., Ltd. (Sae Kwang), Woosung Co., Ltd., (Woosung), Hanil Stainless Steel Ind. Co., Ltd., (1) Seshin Co., Ltd. (Seshin), Pionix Corporation (Pionix), East West Trading Korea, Ltd. (East West), Clad Co., Ltd. (Clad), and B.Y. Enterprise, Ltd. (B.Y.). The period of review (POR) is January 1, 1999, through December 31, 1999. In the Preliminary Results, we determined that the following companies made no shipments of subject merchandise to the United States during the POR: Sugjin, O. Bok, Won Jin, Hai Dong, Pionix, Seshin, Dong Hwa, Wonkwang, and Charming Art. Our review of Customs import data indicated that there were no entries of subject merchandise made by these manufacturers/exporters during the POR. Therefore, we preliminarily rescinded this review with respect to these manufacturers/exporters. On March 17, 2000, counsel for Chefline requested that the Department rescind the review with respect to Woosung. Woosung is Chefline's original corporate name which was changed to Chefline in March 1996. Since Chefline submitted uncontested evidence on the record to support their claim and petitioner did not object to Chefline's request for recission with regard to Woosung, we preliminarily rescinded the review with respect to Woosung. In the Preliminary Results, the Department concluded that, because B.Y., Clad, Sae Kwang, East One, East West, Bae Chin, Han Il, Il Shin, Kyung- Dong, Poong Kang, Namyang and Chefline wholly failed to respond to the Department's questionnaire, a determination based on a total facts available (FA) is warranted for these companies. Further, the Department determined that because Ssangyong failed to respond to sections B and C of the Department's questionnaire and Samyeung failed to respond to section D of the Department's questionnaire, these companies failed to act to the best of their respective abilities, and therefore an adverse inference is warranted in applying FA for these companies. See Preliminary Results, 66 FR at 11261-11262. For the final results, no interested party comments were submitted regarding the non-responsive firms and we continue to find that the failure of these 14 manufacturers/exporters to respond in whole or part to the Department's questionnaire in this review demonstrates that these entities failed to cooperate by not acting to the best of their ability. Thus, consistent with the Department's practice in cases where a respondent fails to respond to the Department's questionnaire, in selecting FA an adverse inference is warranted. For a discussion of the application of an adverse inference in this case, see Preliminary Results, 66 FR at 11262. As adverse FA we are assigning these manufacturers/exporters the highest rate calculated for any respondent in any segment of this proceeding. This rate is 31.23 percent. See Final Determination of Sales at Less Than Fair Value; Certain Stainless Steel Cookware from Korea, 51 FR 42873 (November 26, 1986). For a discussion on corroboration of the 31.23 percent FA rate, see Memorandum on Application of Facts Available for Sam Yeung Ind. Co., Ltd. (Samyeung) in the Preliminary Results of the 1999 Administrative Review, dated January 30, 2001. Also, for a general discussion of the relevance of the selected FA rate for all non-cooperating respondents, see Preliminary Results, 66 FR at 11263-11264. We invited parties to comment on our preliminary results of review. On March 26, 2001, we received case briefs from the Stainless Steel Cookware Committee (the petitioner), Dong Won, and Daelim (the respondents). On April 2, 2001, we received rebuttal briefs from the petitioner and the respondents. The Department has conducted this administrative review in accordance with section 751 of the Tariff Act of 1930, as amended (the Act). Changes Since the Preliminary Results Since the preliminary results, we have made the following changes in our calculations. 1. In response to comments from the petitioner and respondents, we have modified our model match methodology. See Comment 1 below. 2. In response to comments from the petitioner and respondents, we have made corrections to the margin calculation programs for Dong Won and Daelim. See Comments 5, 6, 7 and 9 below. Discussion of Issues Comment 1: Model Match Methodology The petitioner states that in the preliminary results the Department found stainless steel cookware to consist of one foreign like product. However, according to the petitioner, the Department's model match program required that a U.S. product and home market or third-country market product be identical in both type and body material before the Department compared the prices of the products for purposes of calculating a dumping margin. If the U.S. and foreign market products matched on the basis of both type and body material, the Department then identified the most similar product matches by employing the remaining matching criteria. If no foreign market product could be found that matched the U.S. product in terms of both type and body material, the Department did not examine whether similar products could be identified on the basis of the other matching criteria. Instead, the Department compared the price at which the U.S. product was sold with constructed value (CV). The petitioner contends that the model match methodology used by the Department in the Preliminary Results is contrary to the requirements of the statute and the Department's standard model matching methodology. Thus, it recommends that the Department revise its model matching methodology in the final results so that sales of products in the U.S. market during the POR are matched to sales of similar home market or third country market products using all identified model matching criteria, regardless of whether body material are identical. According to the petitioner, the Department has interpreted section 771(16) of the Act to require the Department to first compare sales of the U.S. product to sales of home market or third-country market products having identical physical characteristics. If no identical home or third- country market products exist, the Department's policy is to find the "most similar" home market or third country market product sold in the United States. See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From Japan; Final Results of Antidumping Duty Administrative Reviews and Revocation in Part, 65 FR 11767 and Accompanying Decision Memo at Comment 1 (March 6, 2000) (TRBs and Accompanying Decision Memo). The petitioner asserts that the Department's standard model matching methodology attempts to exhaust all home market or third-country market models in each like product category in the search for the most similar model for comparison with each model sold in the United States. Once the most similar model is identified, the Department calculates a difference in merchandise (DIFMER) value to determine whether the comparison can be used in the dumping analysis. Id. According to the petitioner, if the DIFMER exceeds 20 percent of the total average cost of manufacture of the model exported to the United States, the Department will not match the products for comparison purposes. Thus, the DIFMER test address the statutory requirement that home market or third country market merchandise be approximately equal in commercial value to the merchandise sold in the United States, because it precludes the comparison of models whose cost deviation exceeds 20 percent. Id. The petitioner states that in this case, the Department has found only one foreign like product, consisting of all top-of-the-stove stainless steel cookware. See Preliminary Results, 66 FR at 11264. The petitioner notes that while the Korean respondents argued that "distinctions" should be made among different cookware types and the petitioner stated that the Department could conceivably find cookware vessels and cookware parts to be two separate foreign like products, the Department did not make such a finding. According to the petitioner, in light of the Department's definition of foreign like product in the Preliminary Results, the Department's standard model matching methodology would use the entire pool of the respondents' home market or third country market merchandise, as appropriate. However, the petitioner contends that the Department did not employ its standard methodology. Instead, the Department required matches between U.S. models and home market or third country models first be based on the first two criteria in the matching hierarchy. Only when a product matched on the basis of both type and body material did the Department consider the remaining criteria. The petitioner maintains that the Department essentially created foreign like product categories on the basis of these two criteria. However, the petitioner claims that the Department provided no explanation or support for such a determination. In addition, the petitioner argues that the Department's immediate resort to CV in the event that no matches can be identified on the basis of type and body material fails to acknowledge the preference for price-to-price comparisons in the antidumping analysis. According to the petitioner, the Court of Appeals for the Federal Circuit recognized this statutory preference in Cemex , S.A. v. United States, 133 F.3d 897, 904 (Fed. Cir. 1998) ( Cemex). The petitioner states that in Cemex, the court held that if non-identical sales of the home market product are unavailable or excluded as outside the ordinary course of trade, the plain language of the statute requires the Department to base normal value (NV) on "nonidentical but similar merchandise...rather than constructed value." Thus, the petitioner contends that it is not permissible under the statute for the Department to determine that there are no home market matches for a U.S. model unless the Department has examined every home market model within the foreign like product category and identified the model that is most similar to each U.S. model sold. Similarly, the petitioner maintains that it is not permissible for the Department to determine that there are no model matches without first calculating a DIFMER for each next "most similar" model comparison. The petitioner argues that only if the DIFMERs for every comparison of similar merchandise are over 20 percent may the Department determine that there are no matches for that U.S. model and use CV as the basis of NV. However, the petitioner claims that in this case the Department has applied the 20 percent test only to those home market or third country models that first matched a U.S. model on the basis of both type and body material. The petitioner argues that under similar circumstances, the U.S. Court of International Trade (CIT) has held that the Department's model matching methodology must apply the DIFMER test to "ensure that the home market models considered similar to United States models [are] compared with similar United States models in instances in which there are no [identical] home market models. See Koyo Seiko Co., Ltd. v. United States, 810 F. Supp. 1287 (CIT 1993)(Koyo Seiko). According to the petitioner, in Koyo Seiko, the Department had erroneously applied its 20 percent DIFMER test only to the most similar home market model and did not consider other models in the pool of potentially similar merchandise. The petitioner contends that the Department agreed with the plaintiff's argument that the Department's model matching methodology must consider "all potential home market similar merchandise and...avoid whenever possible the use of constructed value." Id. Thus, the petitioner argues that contrary to Koyo Seiko the Department's preliminary methodology in this cookware case fails to "ensure that the home market models considered similar to the United States models, would, in fact, be compared with similar United States models...." and thus is contrary to law. See Koyo Seiko, 810 F. Supp. at 1290. In the alternative, the petitioner maintains that even if the Department determines that cookware vessels and cookware parts are separate foreign like product categories in the final results of review, there is no evidence on the record that would support the Department's further sub- categorization of the foreign like product on the basis of body material. Such a subdivision, according the petitioner, would lead to the incongruous result of finding that a 3-ply stainless steel frying pan with an aluminum core sold in the home market or third country market was not comparable to a 3-ply stainless steel frying pan with a carbon steel core sold in the United States. The petitioner asserts that the aluminum core frying pan sold in the home market, however, would still have the same component material (i.e., stainless steel) and would be used for the same purpose (i.e., frying foods) as the carbon steel core frying pan sold in the United States. Consequently, according to the petitioner, the Department would preclude matches to home market or third country market products that fit squarely in the statute's definition of "foreign like product." The petitioner argues that such a methodology would be overly restrictive and fail to identify the most similar home market or third country market matches. In rebuttal the respondents argue that the Department should continue to follow its preliminary model match program for the final determination. According to respondents, the petitioner acknowledges that the scope of products covered by this review includes "vastly different products." See Petitioner's Case Brief at 8. The respondents maintain that these differences are particularly pronounced with respect to product type and body material. Thus, if the Department were to adopt the petitioner's approach, lids could be compared to stock pots and 5-ply stock pots with copper cores could be compared to single-ply frying pans. This, the respondents contend, would clearly lead to unreasonable and absurd results. The only thing to possibly preclude absurd and unreasonable comparisons would be the 20 percent DIFMER test. However, the respondents argue that the DIFMER test does not, and cannot, distinguish between vastly different products and therefore would be manifestly inadequate for this purpose. Therefore, the respondents assert that the Department's decision to create separate "like product" categories based on type and body material, was both reasonable and highly appropriate. The respondents disagree with the petitioner's contention that the Department "found only one foreign like product, consisting of all top-of- the-stove stainless steel cookware." See Petitioner's Brief at 7. According to the respondents, the Department's model-matching memorandum that was issued in this case clearly indicates that the Department's model- matching includes two "like product" categories, i.e., vessels of all types and parts. The respondents argue that while the Department did not explicitly create "like product" categories based on body material in the model match memorandum, there is nothing that precludes the Department from doing so. According to the respondents, the petitioner does not and could not, in any way, contend that the Department would not have authority to establish separate "like product" categories. The statute provides the Department with significant discretion when it comes to defining "foreign like product." Further, the respondents point out that the petitioner itself previously suggested that the Department establish two "like product" categories in this case (1) vessels of all types, and (2) parts, including inserts and lids. The petitioner alleged that such a distinction would ensure that vastly different products are not matched. Id. The respondents argue that because the Department did, in fact, establish more than one "like product" category, all of the cases cited by the petitioner are inapposite. According to the respondents, these cases at most stand for the proposition that the Department must consider all products within each "like product" category (or "such or similar" categories in "old law" cases), as possible comparison models. The respondents maintain that these cases do not address the situation here where the Department found multiple "like products." Nothing in those cases requires the Department to make comparisons across "like product" categories which is the position the petitioner is advocating in its Case Brief. According to the respondents, the petitioner's position that there is no evidence on the record that would support the Department's further subcategorization of the foreign like product on the basis of body material is surprising and disingenuous. See Petitioner's Brief at 12. The respondents maintain that the petitioner has previously argued that "Committee believes that the most important product characteristics are those relating to the type of metal used to produce the cookware." See Petitioner's April 10, 2000 Letter. Not only did the petitioner contend that "[d]ifferences in the type of stainless steel also result in differences in manufacturing cost", the petitioner also provided evidence to that effect. Id. The respondents assert that for the petitioner to now assert that "there is not evidence on the record that would support the Department's further subcategorization of the foreign like product on the basis of body material" is patently absurd. See Petitioner's Brief at 12. Moreover, the respondents contend that it is disingenuous for the petitioner to now argue that the very approach it previously advocated is inappropriate or unlawful. Furthermore, the respondents argue that such subcategorization is clearly supported by the statute. According to the respondents, section 771(16)(B)(ii) directs the Department to consider whether the foreign merchandise is "like" the subject merchandise "in component material or materials." The respondents note that a three-ply stainless steel frying pan with an aluminum core is clealy not "like" a single ply stainless steel frying pan in terms of component parts, and it was clearly appropriate for the Department to make such a decision. In conclusion, the respondents state that the Department's decision to create separate "like product" distinctions based on type and body material was not only warranted by the facts of this case, but clearly the most appropriate approach given the product differentiations involved. According to the respondents, not only is this approach consistent with the applicable statute, it is also consistent with the Department's past practice in this proceeding. DOC Position: Based on our analysis of the written comments submitted to the Department since the preliminary results in this proceeding, we find that the model match methodology used in our preliminary results should be modified with regard to identifying similar merchandise. For purposes of calculating NV, section 771(16) of the Act defines "foreign like product" as merchandise which is either (1) identical or (2) similar to the merchandise sold in the United States. In cases where we do not find that the identical products were sold in the home market, we will then identify, using a product matching methodology, the product sold in the foreign market that is most similar to the product sold in the United States. See section 773 (a)(6)(C)(ii) of the Act. In identifying which physical characteristics should be given the most weight in our determination of appropriate product comparisons, we consider comments from all parties. We then develop a product matching methodology based on the physical characteristics of the merchandise. This process is designed to give the parties a predictable and accurate basis for determining possible product matches in current as well as future administrative reviews. See e.g., Notice of Final Results and Partial Recission of Antidumping Duty Administrative Review: Roller Chain, Other Than Bicycle, From Japan, 62 FR 60472 (November 10, 1997). Further, for those non-identical or most similar products which are identified based on the Department's product matching criteria, we make a DIFMER adjustment to the home market sales price to account for the actual physical differences between the products sold in the U.S. and the home market or third-country market. Id. In the preliminary results, the model match methodology used by the Department was based on comments solicited from all interested parties. Based on the comments of respondents and petitioner, we developed a model matching methodology predicated upon 11 physical characteristics (i.e., product type, body material, grade of stainless steel, gauge of vessel sides, capacity, inside diameter, type of bottom, bottom thickness, body finish, cover material, and handle feature). See Letter from the Department to King & Spalding, dated May 23, 2000; Letter from the Department to Hogan & Hartson, dated May 23, 2000. Further, based on comments received from interested parties, we concluded that to be considered similar, merchandise must be identical with regard to "product type" (i.e., (1) vessels of all types, or (2) parts). See Memorandum to File Re Selection of Model Matching Criteria, dated June 19, 2000 (Model Matching Criteria Memo). Also in our model matching program we established "body material" as a requirement for matching. See Calculation Memorandum for the Preliminary Determination of the 1999 Administrative Review of the Antidumping Duty Order on Top-of-the-Stove Stainless Steel Cooking Ware from Korea, dated January 30, 2001. Thus, in the preliminary results, the model match program required matches between U.S. models and home market models or third country models on the basis of "product type" and "body material." Only when a product matched on the basis of "product type" and "body material" did the Department consider the remaining matching criteria to determine the most similar comparison product. In the event that no potential matches could be identified on the basis of "product type"and "body material", we compared the U.S. sale to CV. As noted above, section 771(16) directs the Department to select home market comparison merchandise which is, preferably, physically identical to merchandise sold in the United States. If identical comparison merchandise is unavailable, we may then select merchandise which is similar in component material and in the purposes for which used, after adjusting for any differences in the physical characteristics of the comparison merchandise (the so-called DIFMER adjustment). See also TRBs, 66 FR at 11767 and Accompanying Decision Memo at Comment 1. The statute is silent, however, as to the precise manner in which similar merchandise is to be identified. Because the antidumping statute does not detail the methodology that must be used in determining what constitutes "similar" merchandise, the Department has broad discretion, implicitly delegated to it by Congress, to apply an appropriate model match methodology to determine which home market models are properly comparable with U.S. models under the statute. See e.g., Koyo Seiko Co., Ltd., et. al. v. United States, 66 F.3d 1204 (Fed. Cir. 1995). The Courts will uphold the Department's model match methodology as long as it is reasonable. See NTN Bearing Corp. of America, et al v. United States, 924 F. Supp. 200 (CIT 1996); SKF USA Inc., et al v. United States, 876 F. Supp 275 (CIT 1995). After reviewing the parties comments on the record, we agree with the petitioner that "subcategorization"(i.e., requiring merchandise be identical with respect to "body material" to be considered similar) is not warranted by the facts of this case. As noted by the petitioner, "subcategorization" by "body material" could result in a finding, for example, that a 3-ply stainless steel frying pan with an aluminum core sold in the home market or third country market is not comparable to a 3- ply stainless steel frying pan with a carbon core in the United States. Although they would have some different component material, the aluminum core frying pan sold in the home market would still have significantly the same component material (i.e., stainless steel) and would be used for the same purpose (i.e., frying foods) as the carbon steel core frying pan sold in the United States. Consequently, "subcategorization" by "body material" precludes matches to home market or third-country market products that fit within the statute's definition of "foreign like product" and might be appropriate foreign market product comparisons. For the final results of this review, based on interested party comments, we have amended our matching methodology as follows: merchandise will be considered "identical" if it matches with regard to all 11 of the physical characteristics laid out in our Model Matching Criteria Memo. Merchandise will be considered "similar" for purposes of model matching only if it is of the same "product type"(i.e., (1) vessels or (2) parts) as outlined in our Model Matching Criteria Memo. Based on comments submitted by respondents and petitioner prior to the issuance of the Preliminary Results, it was determined that "[s]uch a distinction will ensure that vastly different products...are not matched." Id. If merchandise is identical on the basis of "product type", we will then select the most "similar" model through a hierarchical ranking of the remaining 10 product characteristics and application of the DIFMER test. If there are no sales of identical or similar merchandise in the home market to compare to U.S. sales, we will compare U.S. sales to the CV of the product sold in the U.S. market during the comparison period. We find that this modification to our model matching methodology will yield more accurate results and minimize the effects of potential distortions to our calculations. Comment 2: Circumstance of Sale Adjustment for Commissions Incurred on Dong Won Sales in Canada The petitioner argues that the Department should deny Dong Won a circumstance of sale (COS) adjustment for commissions incurred on sales to a third-country customer. During verification, the petitioner contends, the Department found that the sales documentation generated on commission sales to a particular third-country customer did not correspond to the information Dong Won reported in its questionnaire response. See Department's Sales Verification Report for Dong Won, at 13. According to the petitioner, it is well settled that a party seeking an adjustment bears the burden of demonstrating its entitlement to the adjustment. See section 773 (6)(C) of the Act. In this case, the petitioner maintains, not only has Dong Won failed to meet this burden, but the Department found that sales documentation examined at verification actually contradicted the information Dong Won had reported about the commission process. Accordingly, the petitioner asserts, the Department should deny Dong Won's COS adjustment for commissions incurred on sales to the third-country customer. In rebuttal, Dong Won maintains that the petitioner is wrong and has misinterpreted the Department's verification report. At verification, Dong Won states, it provided conclusive evidence demonstrating that commissions were in fact incurred and paid during the POR with respect to the transactions in question. Thus, Dong Won argues, the reported amounts were verified and should be used by the Department in the final results of this review as they were in the preliminary results. Dong Won does not dispute that the narrative description of commission expenses in Section B of its questionnaire response did not clearly explain the differences that exist in the mechanism by which commissions were incurred and paid on the transactions in question as compared with sales to other Canadian customers. However, Dong Won disagrees that this in any way invalidates or calls into question the accuracy of the reported commission amounts or otherwise supports denial of the adjustment. According to Dong Won, the fact remains that the Department verified that the commission expenses were incurred and paid with respect to these transactions. In addition, Dong Won contends, the Department verified that the reported per-unit commission expense was correct and that the described mechanism by which the commissions were incurred on the sales in question was accurately explained and documented at verification. See Department's Sales Verification Report for Dong Won, at 13. As a result, Dong Won argues, it has demonstrated that these expenses were incurred and paid and were properly reported on the third-country sales file. According to Dong Won, no more is required to support Dong Won's entitlement to the COS adjustment. DOC Position: At verification we found that the narrative description of commission expenses in Section B of Dong Won's questionnaire response did not correspond to the actual mechanism by which commissions were incurred and paid with respect to the transactions in questions. However, at verification we also confirmed, without discrepancy, that Dong Won accurately reported the amounts paid for these commissions . See Dong Won Metal Co., Ltd.: Report on the Verification of Sales Information Submitted in the Administrative Review Covering January 1, 1999 through December 31, 1999, dated January 30, 2001 at 12-13. Therefore, although, Dong Won failed to accurately describe in its questionnaire responses the mechanism by which commissions were paid with respect to the specific transactions in question, we were able to fully verify that the reported per-unit commission expense for these transactions was correct. Comment 3: Home Market Inland Freight Adjustment for Daelim According to the petitioner, the Department's longstanding policy is to allocate expenses on the basis on which they are incurred. See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27362 (May 19, 1997) (Final Rule). In its September 6, 2000, comments, the petitioner objected to Daelim's allocation methodology for expenses incurred by Living Star, its home market affiliate, to transport merchandise from Living Star to the first unaffiliated customer in the home market. According to the petitioner, Daelim did not demonstrate that its allocation methodology was not distortive and failed to explain how Living Star incurred these freight expenses except to state that it allocated freight expense on the basis of value because "this methodology most accurately reflects the manner in which freight is incurred." See Daelim's November 30, 2000, Supplemental Response at 9-10. Moreover, the petitioner argues that before allowing a price adjustment based on allocated expenses, the Department requires that the party seeking the adjustment demonstrate that its allocation methodology is reasonable and does not cause distortions. See section 351.401(g)(2). However, the petitioner asserts, Daelim does not explain whether the trucking companies Living Star used charged for freight by volume, weight, or distance traveled. The petitioner states that in its experience, common carriers do not base charges on the sales value of the cargo, and contend that Daelim has not established that the carriers Living Star used charged on that basis. According to the petitioner, allocating freight expenses based on sales value when the charges were incurred by volume, weight, or distance traveled is fundamentally distortive. The petitioner contends that the Department has previously rejected claims for movement expense adjustments where the respondent allocated the expenses by sales value. Moreover, according to the petitioner, the Department has stated repeatedly that "allocations of freight cost by volume, weight, distance, or a combination of these, are preferable to allocations based on sales value." See e.g. Tapered Roller Bearings, Four Inches or Less in Diameter, and Components Thereof, from Japan, 59 FR 56035, 56044 (November 10, 1994) ( TRBs). The petitioner argues that where the Department has accepted allocations of freight expenses based on sales value, the Department has required the respondent to demonstrate that there is no other allocation methodology available. Id. According to the petitioner, Daelim has not demonstrated that a more accurate allocation was not possible in this review. Also, the petitioner states that at verification Living Star officials explained that Living Star maintains records on the number and weight of cartons it ships. See Department's January 30, 2001 Sales Verification Report for Daelim. Thus, the petitioner suggests that the evidence indicates that Daelim could have allocated freight expenses on the basis of weight which would be less distortive and more accurate than one based on sales value. Further, the petitioner claims that the total sales value that Daelim used to allocate freight expenses apparently contains out-of-scope merchandise. According to the petitioner, the Department's practice is to only accept an allocation methodology that involves out-of-scope merchandise if the party claiming the adjustment can demonstrate that the methodology is neither distortive nor inaccurate. See Final Rule. The petitioner argues that Daelim has provided no meaningful information on the nature of these out-of-scope products. Thus, it contends that it must be assumed that the allocation methodology inherently distorts the amount of freight expenses allocated to sales of the foreign like product. In conclusion, the petitioner argues that Daelim's freight expense allocation clearly is distortive as Daelim has not demonstrated that it incurs freight expenses on the basis of value. Moreover, it states that the inclusion of out-of-scope merchandise in the total sales value used to allocate freight expenses also calls into question the accuracy of Daelim's allocation. The petitioner maintains that because Daelim has failed to demonstrate that freight expenses were reported on the most accurate and least distortive basis possible, the Department should deny Daelim's claim for an adjustment to NV for inland freight expenses. In rebuttal, Daelim claims that its allocation methodology for inland freight expenses incurred by Living Star is both reasonable and non- distortive. Daelim maintains that its methodology was verified during the sales verification and correctly accepted by the Department in the preliminary determination in this review. Daelim states that it recognizes that the Department generally prefers that expenses be allocated on the basis on which they are incurred. Because Living Star was charged for inland freight by the container, this would require allocation of inland freight expenses on a per-container, or volume basis. However, Daelim contends, such an allocation methodology would be problematic. According to Daelim, not only would it result in the allocation of no freight to products of no measurable volume but it would also overstate costs for sets in which vessels were packed one inside the other. Daelim states that it determined that allocation on the basis of value was the more reasonable method of allocation. Daelim asserts that the allocation on the basis of value has the benefit of permitting Daelim to allocate freight expenses to all parts included in a shipment, even those with no measurable volume (i.e., all other things being equal, bigger pots with larger volumes are generally more expensive than smaller pots with less volume). According to Daelim, the petitioner's challenge to its allocation methodology essentially boils down to an argument that allocation by weight is more reasonable than allocation by value. As a threshold matter, Daelim argues, the petitioner's argument appears to be premised on the mistaken assumption that Living Star incurred its inland freight expenses on the basis of weight. However, Daelim notes, Living Star is charged a freight expense for each container it ships, not by the weight of each container. Thus, Daelim contends that the petitioner's proposed methodology does not more closely allocate freight expenses to the basis on which Living Star incurred them than an allocation on the basis of value. With regard to the petitioner's claim that Daelim's allocation basis is inappropriate because it includes non-subject merchandise, Daelim asserts that the petitioner ignores the fact that Living Star's freight expense is incurred on the same basis regardless of whether subject or non-subject merchandise is shipped. According to Daelim, the Department's regulations specifically contemplate that expenses for non-subject merchandise may be included in the basis of allocation so long as the expenses are not incurred disproportionately on the out-of-scope or the in-scope merchandise. Daelim argues that as the same freight charges apply to both subject and non-subject merchandise and are incurred on exactly the same basis, the total amount of non-subject merchandise included in each shipment is simply not relevant to the Department's analysis in this case. DOC Position: While we have stated, as the petitioner notes, that allocations of freight costs by volume, weight, distance, or a combination of these elements are preferable to allocations based on sales value, there have been instances where we have determined that allocation of freight expenses based on value is a reasonable method and does not produce distorted results. See TRBs, 59 FR at 56044. In its response to our October 16, 2000 supplemental Section D Questionnaire Daelim explained the rationale for basing Living Star's inland freight expense allocation methodology on value by stating that an allocation of inland freight on a volume basis would result in the allocation of no freight expense to products of no measurable volume and would overstate costs for sets in which vessels were packed one inside the other. According to Daelim, allocation on the basis of value permits the allocation of freight expenses to all parts included in a shipment, even those with no measurable volume. See Daelim's Response the October 16, 2000 Supplemental D Questionnaire dated November 30, 2000, at 9. Living Star's inland freight methodology was examined during the Department's sales verification and found to be acceptable and reasonable. See Verification of Top-of-the-Stove Stainless Steel Cooking Ware from Korea - Daelim - Sales Verification, dated January 30, 2001 at page 6. Comment 4: Constructed Value Selling Expenses for Dong Won and Daelim According to respondents, in the preliminary margin analysis for Dong Won and Daelim, the Department calculated CV selling expenses as a percentage of the cost of production (COP). The respondents maintain that this methodology is a departure from the one generally used by the Department. The respondents claim that the Department's usual practice with respect to price-to-CV comparisons is to calculate CV selling expenses as a single weighted-average amount to be applied to all products. See e.g. , Final Determination of Sales at Less Than Fair Value: Extruded Rubber Thread from Indonesia, 64 FR 14,690 (March 26, 1999); Porcelain-on-Steel Cookware From Mexico: Preliminary Results of Antidumping Duty Administrative Review, 64 FR 1592 (January 11, 1999); Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod From Sweden, 73 FR 40449 (July 29, 1998). The respondents state that the Department provided no reason why a departure from this methodology is warranted in this case, nor does such a reason exist. Accordingly, the respondents maintain that the Department should recalculate the CV selling expense for both Daelim and Dong Won on a per-unit basis. In rebuttal the petitioner states that respondents not only fail to establish that the use of a single weighted-average amount is the Department's "usual" methodology, but they offer no explanation as to why such a methodology would be more appropriate than the one the Department used in the preliminary results. According to the petitioner, the Department's preliminary results methodology is far less distortive and more accurately reflects CV in this case than does the respondents' proposed approach. The petitioner argues the mere citation of a few cases by the respondents does not establish the Department's usual practice with regard to the calculation of CV selling expenses as a single weighted-average per-unit amount. Moreover, the petitioner maintains that in contrast to the cases cited by respondents, in this case there are much more extreme variations between the values of low-end products and high-end products subject to the order. Therefore, according to the petitioner, calculating CV selling expenses on the basis of a single-weighted average per-unit amount would introduce distortions to CV that would not have been an issue in the cases cited by respondents. The petitioner notes that the Department has the discretion to use a methodology that results in the most accurate calculation possible in light of the particular facts of a case. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Polyester Staple Fiber From Taiwan, 65 FR 16877 (March 6, 2000) and accompanying Decision Memo at Comment 1; Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From Japan; Final Results of Antidumping Duty Administrative Reviews and Revocation in Part, 65 FR 11767 (March 6, 2000) and accompanying Decision Memo at Comment 3. According to the petitioner, the use of respondents' proposed methodology would not result in the most accurate dumping margin possible. Rather, the petitioner argues that it would severely distort total CV because the cookware products subject to this order vary significantly in terms of physical characteristics and the cost to produce the cookware also varies. Thus, the petitioners maintain that the use of a single weighted-average amount for CV selling expenses would fail to take into account the broad range of values represented by the subject cookware. The petitioner claims that by calculating CV selling expenses as a percentage of COP, however, the Department's methodology in the preliminary results appropriately accounts for the differences in COP and reflects the fact that the higher- value products should absorb proportionately more selling expenses than lower-value products. Further, the petitioner claims that the Department's methodology in the preliminary determination is even more appropriate when the relationships among cost, selling prices, and selling expenses are considered in the context of this review. In particular, for cookware that was sold as part of a set, the respondents used variable cost of manufacture to allocate the sales price of the set to the individual cookware products. In turn, commission and selling expenses are incurred based on sales activity. According to the petitioner, because the respondents' sales prices are allocated on the basis of cost, CV selling expenses should be calculated on a basis that most closely corresponds to the manner in which respondents allocated their sales prices. Thus, the petitioner asserts that the Department correctly calculated CV selling expenses as a percentage of COP, as opposed to a single weighted-average amount to be applied to all products. Finally, the petitioner notes that it is the Department's established practice to calculate all other components of CV as a percentage of cost. For example, the petitioner points out that selling, general, and administrative expenses, interest expenses, and CV profit are all allocated and applied on a cost basis. See Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Japan: Final Results Antidumping Duty Administrative Review, 66 FR 11555, (February 26, 2001) and accompanying Decision Memo at Comment 4. Thus, the petitioner argues that it is reasonable and consistent to calculate other CV components, namely CV selling expenses, on the same basis. In conclusion, the petitioner argues that the respondents have failed to establish that the Department is required to calculate CV selling expenses as a single-weighted average per-unit amount. Moreover, the petitioner asserts that the Department has the discretion to employ a calculation methodology that would result in the most accurate dumping margin possible. According to the petitioner, because the Department's methodology in this case avoids the distortions that are inherent in the respondents' proposed methodology, the Department should continue to calculate CV selling expenses as a percentage of COP in the final results. DOC Position: We disagree with respondents that the methodology used in the preliminary results for the calculation of CV selling expenses is a departure from the one generally used by the Department. While it is true that in the past the Department has used the methodology proposed by the respondents, the Department's current practice is to calculate CV selling expenses by taking the total selling expenses for all above home market sales, divided by the total COP of those same sales and applying the resulting ratio to the COP (net of selling expenses) of the CV product. See Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Germany: Final Results Antidumping DutyAdministrative Review, 66 FR 11557 (February 26, 2001) and accompanying Decision Memo at Comment 10; Preliminary Results of Antidumping Duty Administrative Review; Aramid Fiber Formed of Poly Para- Phenylene Terephthalamide from the Netherlands, 66 FR 13879, 13880 (February 26, 2001); Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea: Preliminary Results of Antidumping Duty Administrative Review, 66 FR 30688, 30694 (June 7, 2001); Silicon Metal From Brazil: Preliminary Results of Antidumping Duty Administrative Review and Notice of Intent Not To Revoke Order in Part, 63 FR 42001 (August 6, 2001). Comment 5: Imputed Inventory Carrying Costs for Dong Won and Daelim Respondents claim that the Department incorrectly included imputed expenses - specifically, inventory carrying costs - as part of CV selling expenses, in its calculation of CV for both Daelim and Dong Won. As such, the Department's calculation is inconsistent with the antidumping statute and with Departmental practice. According to respondents, the antidumping statute mandates that in calculating CV, the Department must include only "the actual amounts incurred and realized by the specific exporter or producer being examined in the investigation or review for selling, general, and administrative expenses...in connection with the production and sale of a foreign like product, in the ordinary course of trade, for consumption in the foreign country...." See section 773(e)(2)(A) of the Act; Notice of Amended Final Results of Antidumping Duty Administrative Review: Dynamic Random Access Memory Semiconductors of One Megabit or Above From the Republic of Korea, 63 FR 56906 (October 23, 2998). Thus, respondents argue that imputed selling expenses - including imputed inventory carrying costs - are not to be included in the CV calculation. The petitioner did not address this issue. DOC Position: We agree with respondents and have corrected this error in the Department's margin calculation program for both companies. See Dong Won Final Results Calculation Memorandum, dated August 22, 2001; Daelim Final Results Calculation Memorandum, dated August 22, 2001. Comment 6: Weighted-Average Third-Country Expenses for Dong Won Dong Won contends that the Department's margin program contained an error that caused the values reported in certain fields to be transposed into other, incorrect fields. Specifically, during the weight-averaging of third-country expenses, the values reported in the DINDIRST, DINLFTPT, CREDIT2T, AND DIRSEL2T fields were transposed into the DIRSEL2T, DINDIRST, DINLFTPT, and CREDIT2T fields, respectively. As a result, these fields were not treated properly in the margin calculation program. The petitioner did not address this issue. DOC Position: We agree with Dong Won and have corrected this error in the Department's margin calculation program. See Dong Won Final Results Calculation Memorandum, dated August 22, 2001. Comment 7: Conversion of Third-Country Expenses from Korean Won to U.S Dollars for Dong Won Dong Won maintains that in performing its preliminary margin analysis, the Department erroneously converted certain third-country expenses from Korean won to U.S. dollars twice. Dong Won argues that because two lines of SAS language in the Department's margin program are incorrect, certain comparison market selling expenses (i.e., DINLFTPT, CREDITWT, DIRSEL2T, DINVCART, and PACKT) were multiplied by the exchange rate twice and are, therefore, significantly understated. The petitioner did not address this issue. DOC Position: We agree with Dong Won and note that this error is corrected by virtue of the correction discussed in Comment 6 above. Comment 8: Matching Factors With Respect to Dong Won's Products Dong Won claims that there was a clerical error in the Department's matching program that improperly gave priority to low difference in variable cost over contemporaneity, thereby permitting matches with smaller DIFMER adjustments to be selected ahead of those that were the most contemporaneous. According to Dong Won, the Department's matching program effected this preference by first determining the most similar matches in terms of product characteristics. If there was more than one similar product match, the Department's program selected as the best match the foreign market product which had the lowest DIFMER percentage (COSTDIFF), provided the match was within the 90/60 day contemporaneity guideline. Dong Won contends that as the program was executed, a more contemporaneous third-country model could be passed over as the best match in favor of a model with a smaller difference in variable cost. Dong Won maintains that this is inconsistent with the Department's established practice. According to Dong Won, the Department's usual practice with respect to model matching is to match U.S. products to the identical or, in the absence of identical products, most similar comparison market model on the basis of matching characteristics and contemporaneity. See e.g., Stainless Steel Bar From Japan: Final Results of Antidumping Administrative Review, 64 FR 36333 (July 6, 1999) (Stainless Steel Bar). Further, Dong Won states that in addition to these considerations for matching, the Department requires that the difference in the variable cost of manufacture (COM) between the U.S. and comparison market product be less than 20 percent of the total COM of the U.S. product. Id. at 36335. Dong Won argues that the Department's approach has, in effect, elevated DIFMER adjustments to a product matching criteria. This is contrary to the Department's product matching criteria that were developed in this case and is not supported by the statutory definition of "foreign like product." Dong Won points out that so long as DIFMERs are within the 20 percent threshold, merchandise is considered "approximately equal in commercial value" to the subject merchandise. See section 771 (16)(B) of the Act. According to Dong Won, there is no statutory basis for basing product matches on the level of DIFMER adjustments required. Furthermore, Dong Won states that the antidumping statute provides that contemporaneity is a key consideration in the Department's matching methodology. Id. Accordingly, Dong Won contends that the Department's margin program should have given matching preferences to similar U.S. and third-country products that were the most contemporaneous rather than those with the smallest DIFMER. Dong Won states that the circumstances do not warrant, and the Department has not proposed any reason for, a departure form the Department's established practice. The petitioner did not address this issue. DOC Position: We disagree with Dong Won. Section 771(16) directs us to select home market comparison merchandise which is, preferably, physically identical to merchandise sold in the United States. If identical comparison merchandise is unavailable, we may then select merchandise which is physically similar, after adjusting for any differences in cost attributable to differences in the physical characteristics of the merchandise (the so-called DIFMER adjustment). See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from Japan, and Tapered Roller Bearings, Four Inches or Less in Outside Diameter, and Components Thereof, From Japan; Final Results of Antidumping Duty Administrative Reviews, 63 FR 63860,63874 (November 17, 1998). Our product-comparison methodology, in this case, conforms with the express language of section 771(16) of the Act; if the preferred match (i.e., identical) match is unavailable, our model match program then searches for commercially comparable merchandise which is physically most similar to the U.S. merchandise that is within the 90/60 day window and passes the DIFMER test. Further, in accordance with current Department practice, if our model match program finds two home market models equally similar to a U.S. model, based on physical characteristics, that are within the 90/60 day window, the Department considers the home market model with the smallest COSTDIFF (DIFMER percentage) to be the model most similar to the U.S. sale. See Stainless Steel Wire Rod from Spain; Final Results of Antidumping Duty Administrative Review, 66 FR 10988,(February 21, 2001) and accompanying Decision Memo at Comment 1; Certain Welded Carbon Steel Pipes and Tubes From India; Final Results of Antidumping Duty Administrative Review, 63 FR 32825, 32830 (June 16, 1998). Dong Won cites Stainless Steel Bar to support its argument regarding the Department's usual practice with respect to model match. However, we note that Stainless Steel Bar does not support Dong Won's argument. In Stainless Steel Bar, the respondent (Aichi) argued, similar to Dong Won, that the Department's practice was to match contemporaneous sales as a higher matching priority than level of trade or cost deviation (DIFMER). In responding, the Department stated that "[f]or the current review, when determining appropriate product comparisons for U.S. sales, we compared U.S. sales to contemporaneous home market sales of the comparison model that were physically 'most similar' and which passed the twenty-percent difference-in-merchandise test. We use the results of the model match exercise to find the 'most similar' home market sale within our 90/60 day contemporaneity guideline." Remarking on Aichi's suggestion, the Department stated that it "could lead us to selecting comparison sales which occurred in the same month as the U.S. sale but which are less similar than other sales within the 90/60 day contemporaneity guideline. This would not be consistent with the statute's direction to find the best physical comparison in the home market." See Stainless Steel Bar, 64 FR at 36335-36336. Comment 9: Ministerial Error in Daelim's Margin Program Regarding Net interest Expense for the Calculation of CV The petitioner contends, for the preliminary results, the Department stated that because Daelim was unable to differentiate between long-term and short-term investment income in its calculation of net interest expense, the Department denied Daelim an interest income offset adjustment. However, the petitioner contends that in implementing this decision, the Department's preliminary margin program failed to recalculate Daelim's net interest expense to exclude this adjustment in the calculation of CV. The petitioner requests that the Department correct this error in its calculation of the final results of this review for Daelim. The respondents did not comment on this issue. DOC Position: We agree with the petitioner and have corrected this error in the Department's margin calculation program. See Daelim Final Results Calculation Memorandum, dated August 22, 2001. 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 results of review and the final weighted-average dumping margins for all reviewed firms in the Federal Register. AGREE__________ DISAGREE__________ _______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ (Date) ______________________________________________________________ footnote: 1. Same company as Han Il Stainless Ind. Co., listed above.