66 FR 57417, November 15, 2001 A-580-807 ARP: 6/1/99 - 5/31/00 Public Document G3O8: MJH MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary AD/CVD Enforcement Group III SUBJECT: Issues and Decision Memorandum for the Final Results of the Antidumping Duty Administrative Review of Polyethylene Terephthalate Film, Sheet and Strip from Korea 6/1/99 through 5/31/00 Summary We have analyzed the comments and rebuttal comments of interested parties in the 1999-2000 administrative review of the antidumping duty order covering polyethylene terephthalate film, sheet, and strip (PET film) from Korea (56 FR 25660). As a result of our analysis, we have made changes 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 administrative review for which we received comments and rebuttal comments by parties: 1. Exclusion of Non-Operating Income in Calculation of SKC's General Expense Ratio 2. Accounting for SKC's B-grade Film Costs 3. Whether HSI's sales are CEP or EP transactions 4. Revocation of Order with respect to HSI 5. Calculation of SKC's CEP and CV profit ratios. Background On July 10, 2001, the Department of Commerce (the Department) published the preliminary results of administrative review of the antidumping duty order on PET film from Korea. (See Polyethylene Terepthalate Film, Sheet, and Strip from Korea, Preliminary Results of Antidumping Duty Administrative Review and Intent to Revoke in Part, 66 FR 35933 (July 10, 2001) (Preliminary Results).) Imports covered by this review are shipments of all gauges of raw, pretreated, or primed PET film, whether extruded or coextruded. The films excluded from this review are metallized films and other finished films that have had at least one of their surfaces modified by the application of a performance-enhancing resinous or inorganic layer of more than 0.00001 inches (0.254 micrometers) thick. Roller transport cleaning film which has at least one of its surfaces modified by the application of 0.5 micrometers of SBR latex has also been ruled as not within the scope of the order. PET film is currently classifiable under Harmonized Tariff Schedule (HTS) subheading 3920.62.00.00. The HTS subheading is provided for convenience and for U.S. Customs purposes. The written description remains dispositive as to the scope of the product coverage. The review covers the period June 1, 1999 through May 31, 2000 and three manufacturers/exporters: HS Industries (HSI), Hyosung Corporation (Hyosung) and SKC Limited (SKC). We invited parties to comment on our preliminary results of review. Petitioners (E.I. DuPont de Nemours and Mitsubishi Polyester Film, LLC) filed their case brief on August 8, 2001. SKC filed a case brief on August 9, 2001. Petitioners and SKC filed rebuttal comments on August 24, 2001. HSI filed rebuttal comments on August 13, 2001, and August 24, 2001. Discussion of the Issues Comment 1: Exclusion of Non-Operating Income in Calculation of SKC's General Expense Ratio SKC asserts that in calculating its general expense ratio, the Department should allow both its claim for non-operating income related to sale of the converted film division, and the other elements of non-operating income claimed by SKC in its October 27, 2000 supplementary response. SKC contends that the Departmental policy as set forth in Stainless Steel Bar from Japan, Final Results of Administrative Review, 65 FR 13717, 13718 (March 14, 2000), is to include non-operating income and expense if they "relate to the general operations of the company as a whole." SKC contends that the gain realized through the sale of the converted film division relates to the general operations of the company and should therefore be included in the calculation of SKC's general expense ratio. SKC asserts that it properly included gains relating to the sale of certain production facilities because those production facilities are part of its overall company-wide general expense rate. SKC contends that Department practice is to include gains and losses on sales of fixed assets whether or not these assets were used in the production of subject or non-subject merchandise. SKC notes that in Certain Corrosion-Resistant Carbon Steel Flat Products from Japan, 65 FR 8935, 8941, (February 23, 2000) (Certain Corrosion-Resistant Carbon Steel Flat Products from Japan ) the Department stated that it is "our practice to calculate G&A expenses using the operations of the company as a whole regardless of whether these assets are used purely for the production of subject merchandise or non-subject merchandise." Based on the foregoing, SKC asserts that the Department should accept its general expenses as reported in its October 27, 2000 questionnaire response. If the Department continues to disallow its claim for the non-operating income related to the sale of its converted film division, SKC contends that the Department should allow an offset for the other elements of non- operating income claimed in its calculation of the general expense ratio. These other items include a) "miscellaneous income," b)"dividend earned," c) "rental" income, d) "gain on foreign currency transaction," e) "gain on foreign currency translation," f) "gain on disposal of fixed asset," and g)"gain on valuation of money forward." SKC asserts that in calculating SKC's general expense ratio, the Department intended to exclude only the non-operating income related to SKC's sale of its converted film division. SKC notes, however, that in its preliminary calculations the Department excluded all of SKC's non- operating income including gains that SKC incurred on foreign currency translation, rental income, and dividend income. SKC also notes that in its Preliminary Results the Department stated that it intended to exclude only the non-operating income of the converted film division. SKC asserts that there is no indication in either the Preliminary Results, or in the preliminary margin calculations (See Preliminary Analysis Memorandum for SKC Limited, July 3, 2001) that the Department intended to exclude other elements of SKC's non-operating income unrelated to the sale of SKC's converted film division. SKC contends that excluding these other elements of non-operating income would be contrary to established Department policy because the corresponding expenses (e.g., foreign currency translation losses) were included in the general expenses reported by SKC. Petitioners assert that the Department should disallow SKC's entire claim for non-operating offsets to general expenses. Petitioners contend that Departmental practice doesn't recognize extraordinary gains and losses "symmetrically." Petitioners assert that the Department's inclusion of Kawasaki Steel's extraordinary losses cited by SKC in Certain Corrosion- Resistant Carbon Steel Flat Products from Japan "says nothing about the circumstances under which the Department would offset general expenses with extraordinary or non-operating income," which is in question here. (See petitioner's August 24, 2001 Rebuttal Brief, pp 3-4.) Petitioners also assert that the extraordinary losses at issue in Stainless Steel Bar from Japan differ from the losses in this case. Petitioners note that in Stainless Steel Bar from Japan the losses at issue were "grinding grounds treatment charge," "removal of certain facilities," and "sale of white slag." Petitioners argue that since the Department mentioned only "losses" and "expenses" in its determination, it is possible that the Department "permitted no offset, but simply included various miscellaneous losses as expenses in the G&A calculation." (See petitioners August 24, 2001 Rebuttal Brief, at page 4.) Petitioners further argue that the expenses at issue in Stainless Steel Bar from Japan are categorically different from the expenses at issue in the instant case because the loss in this case involves gains from a non-recurring sale of an entire business. Petitioners assert that in Stainless Steel Bar from Japan, the Department disallowed a claimed "write down of marketable securities" because that claim was "related to investments and not to production of subject merchandise." (See Stainless Steel Bar from Japan, (65 FR at 13717)). Petitioners contend that a gain realized from the sale of a business segment is similar to income from investments in that both are unrelated to production of the subject merchandise. Petitioners further assert that none of the other non-operating investments claimed by SKC relate to operation of the business as a whole but rather to gains from the sale of assets or the valuation of marketable securities. Department's Position: We agree with petitioners that the gain realized by SKC through the sale of its converted film division represents an item that is unrelated to SKC's normal business operations. As noted in Stainless Steel Bar from Japan, 65 FR 13717, 13718 (March 14, 2000) and accompanying Decision Memo at Comment 9, the Department allows offsets to income when such offsets are related to the "general operations of the company." Income related to the sale of an entire division is by its nature non-recurring, and unrelated to the general operation of the company, i.e., manufacturing and selling merchandise. We have therefore excluded the income relating to SKC's sale of its converted film division from our calculation of SKC's general expense ratio. We have also disallowed SKC's claim for "dividend income" because we do not consider the gain or loss from investment activity to be related to the financing of working capital. See Final Determination of Sales at Less Than Fair Value: Oil Country Tubular Goods from Korea, 60 FR 33561, 33567 (June 28, 1995). We have allowed SKC's claimed offsets for "miscellaneous income," "rental income," "gain on disposal of fixed asset," and "gain on valuation of money forward" because SKC included these items in its calculation of general expenses and because these expenses are recurring expenses that relate to the general operations of the company. We have also included offsets for the "gain on foreign currency transaction," and the "gain on foreign currency translation" because these expenses are recurring and related to SKC's general operations. However, consistent with our established policy, we have not allowed such gains and losses relating to accounts receivable because we consider such expenses to be unrelated to the manufacturing activities of the company. (See Notice of Final Determination of Sales at Less Than Fair Value: Steel Wire Rod from Trinidad and Tobago, 63 FR 9177, 9182 (February 24, 1998).) We based our calculation of these income offsets and expenses on the information provided in SKC's June 4, 2001 supplementary questionnaire. Comment 2: Accounting for B-grade film Consistent with previous administrative reviews of this case, SKC objects to the Department's equal allocation of scrap costs to A- and B-grade film. SKC contends that its allocation methodology is reasonable and consistent with widely accepted accounting concepts. In support of its argument, SKC cites to the March 8, 1996 case brief filed in the second and third administrative reviews of this case. (See Attachment 2 of SKC's August 9, 2001 case brief.) SKC states that allocating the cost of scrap film equally to A- and B- grade films improperly overstates the cost of B-grade films while understating the cost of A-grade films. SKC contends that its methodology of initially allocating costs equally among A-grade film, B-grade film, and scrap, and then reallocating the cost of scrap to the cost of A-grade film is consistent with accepted cost accounting methodologies. SKC also asserts that its methodology is consistent with the Department's treatment of jointly produced products in numerous other antidumping proceedings, wherein the Department recognized that a pure quantitative, or physical measures approach to cost allocation is unreasonable where there is significant difference in the value of the jointly produced products. SKC cites Elemental Sulphur from Canada 61 FR 8239, 8241-8243 (March 4, 1996) (Sulphur from Canada); Oil Country Tubular Goods from Argentina 60 FR 33539, 33547 (June 28, 1995) (OCTG from Argentina); Canned Pineapple Fruit from Thailand, 60 FR 29553, 29560 (June 5, 1995) (Pineapple from Thailand) in support of its position. SKC maintains that it is the Department's well-established practice to calculate costs in accordance with a respondent's normal cost accounting system unless the system results in an unreasonable allocation of costs, and cites Pineapple from Thailand as support for this assertion. SKC states that its reported cost of manufacturing (COM) data were calculated in accordance with its normal and long-established management cost accounting system. SKC notes that in the first review of this case (covering the period November 30, 1990 through May 31, 1992), the Department allocated all costs associated with the production of scrap film to A-grade film. SKC contends that this methodology was upheld by the Court of International Trade (CIT). (See E.I DuPont de Nemours & Co.. v. United States, 4 F. Supp. 2d 1248, 1254 (C I T 1998) (DuPont)). Finally, SKC argues that the Department's allocation methodology is "no longer tenable" (see SKC August 9, 2001 case brief at page 6) in light of the decision reached by the U.S. Court of Appeals for the Federal Circuit (the Federal Circuit) in Thai Pineapple Public. Co., Ltd. v. United States, Slip Op. No. 97-1424,-1437 (Fed. Cir. July 28, 1999) (Thai Pineapple). SKC asserts that in Thai Pineapple the Court rejected the use of a weight-based allocation methodology where that methodology was inconsistent with the company's own books and records, and where the cost allocation methodology used by the company was neither price-based nor circular. Based upon the foregoing, SKC concludes that the Department should allocate all scrap costs to A-grade film. Petitioners argue that the Department should continue to allocate scrap costs equally between A - and B-grade film, as the Department has done in the second through eighth administrative reviews of this case. Petitioners note that SKC raised the same arguments in the sixth review of this case covering the period June 1, 1997 through May 31, 1998. Petitioners note that in the 1998-1999 review, the Department continued to allocate production costs between A -and B-grade film, and assert that the Department should continue to do so in this review. Department's Position: We agree with petitioners. As we explained in the final results of previous reviews of this order, we have determined that A- and B-grade PET film have identical production costs. Accordingly, we continue to rely on an equal cost methodology for both grades of PET film in these final results. See Polyethylene Terephthalate Film, Sheet and Strip from the Republic of Korea: Final Results of Review and Notice of Revocation in Part, 61 FR 35177, 33182-83 (July 5, 1996) (Second and Third Reviews); Polyethylene Terephthalate Film, Sheet and Strip from the Republic of Korea; Final Results of Review and Notice of Revocation in Part, 61 FR 58374, 58375-76, (November 14, 1996) (Fourth Review), Polyethylene Terephthalate Film, Sheet and Strip from the Republic of Korea; Final Results of Review, 62 FR 38064, 38065-66 (July 16, 1997) (Fifth Review), Polyethylene Terephthalate Film, Sheet and Strip from the Republic of Korea; Final Results of Review, 63 FR 37334, 37335-36 (July 10, 1998) (Sixth Review), Polyethylene Terephthalate Film, Sheet and Strip from the Republic of Korea; Final Results of Review and Notice of Intent Not to Revoke in Part, (64 FR 62648-62650) (November 17, 1999) (Seventh Review) and Polyethylene Terephthalate Film, Sheet and Strip from the Republic of Korea; Final Results of Review, 65 FR 55003, 55004, (September 12, 2000) and accompanying Decision Memo at Comment 1 (Eighth Review) . Moreover, as noted in the final results of the second through eighth reviews, the CIT has also ruled that our allocation of SKC's production costs between A- grade and B-grade film is reasonable (see E.I DuPont de Nemours & Co., Inc. v. United States, 932 F. Supp. 296 (CIT 1996)). Our acceptance of SKC's allocation of scrap costs in the first review of this case was based upon our understanding that SKC had properly allocated the costs of A- and B-grade film. In that review we did not verify SKC's cost data. We determined that no verification was necessary because SKC was verified in the original investigation. Based upon the evidence existing in the record during the proceeding, we accepted SKC's allocation methodology because we were satisfied that SKC had calculated actual costs consistent with the Federal Circuit's ruling in IPSCO v. United States, 965 F. 2nd 1056 (Fed. Cir. 1992) (IPSCO). (See also Polyethylene Terphthalate Film, Sheet and Strip from the Republic of Korea, 60 FR 42835, 42839-40 (August 17, 1995)). During the second and third administrative reviews, however, we carefully examined SKC's allocation methodology and conducted a thorough verification of SKC's accounting records. We determined that the allocation methodology employed by SKC fails to capture the actual production costs of A- and B-grade film. Based upon this determination, we have consistently required SKC to allocate yield losses equally between A- and B-grade film since the second review of this case. Further, we have determined that A- and B-grade film undergo an identical production process that involves an equal amount of material and fabrication expenses. The only difference in the resulting A- and B-grade film is that at the end of the manufacturing process, a quality inspection is performed during which some of the film is classified as high quality A-grade product while other film is classified as lower quality B-grade film (see Fourth Review, 61 FR at 58375). We continue to reject SKC's argument that DuPont affirmed its accounting methodology. DuPont does not require the Department to accept an allocation methodology that does not accurately capture the actual cost of A- and B-grade film. In DuPont, the CIT concluded that the Department's acceptance of SKC's calculations in the first review was supported by substantial evidence. The Court further concluded that the calculations properly reflected SKC's actual costs of production. The CIT, however, did not affirm SKC's allocation methodology. It merely accepted the allocations resulting from the methodology because the record evidence indicated that those allocations reflected actual production costs as required by IPSCO. In contrast, in the seven previous reviews of this case, the Department has determined that SKC's allocation methodology fails to capture the actual cost of A- and B-grade film. We continue to maintain that SKC's reliance on Sulphur from Canada, Pineapple from Thailand, and OCTG from Argentina is misplaced. In Sulphur from Canada the Department accepted respondent's treatment of sulphur as a by-product of natural gas production and its consequent assignment of all production costs to natural gas production and none to sulphur production in its normal records. (See Sulphur from Canada, 61 FR at 8240-44 (comments 2 and 3)). The Department, therefore, accounted only for the further processing costs of sulphur that respondent incurred after the sulphur gas was removed from the well. When accepting respondent's methodology, the Department conducted a relative value analysis of the sulphur and found that sulphur was an "insignificant" by-product of natural gas operations. (Id. at 8241.) The Department noted that respondent Husky did not have the option of disposing of or selling sulphur gas in the state it is recovered from the well because it is a poisonous substance and the respondent was required by law to process the gas into a safe form before disposing of it. (Id. at 8244.) Likewise in OCTG from Argentina, respondent's production process produced two grades of pipe: primary and secondary. (See OCTG from Argentina, 60 FR at 33547.) However, because the secondary pipe was of such an inferior quality that it could not be sold for normal OCTG applications, the Department determined that the relative value of secondary pipe was "insignificant" compared to OCTG and primary pipe. Id Therefore, the Department allocated all common production costs to the primary pipe and subtracted the revenue received from the small amount of sales of secondary pipe from the total cost of manufacture of the primary pipe. See Id. In the instant case A- and B-grade films are produced in the same production process, with the only difference between A- and B-grade films being a different end-quality categorization. B-grade film is commercially saleable as a form of PET film. Thus, unlike the situations in Sulphur from Canada and OCTG from Argentina, B-grade film is not an "insignificant" by-product of PET film production. Further, Pineapple from Thailand may be distinguished from the instant case because Pineapple from Thailand concerned the appropriate cost methodology for products manufactured in a joint production process where the primary raw material, pineapple fruit, is split apart, with different parts of the raw material going through different production processes to produce canned pineapple fruit and other pineapple products, e.g., pineapple juice. (See Pineapple from Thailand, 60 FR at 29560-61). A joint production process occurs when "two or more products result simultaneously from the use of one raw material as production takes place." (See Keeler et. al., Management Accountants Handbook, Fourth Edition at Chapter 11, page 1.) A joint production process produces two distinct products and the essential point of a joint production process is that "the raw material, labor, and overhead costs prior to the initial split-off can be allocated to the final product only in some arbitrary, although necessary manner." Id. The identification of different grades of merchandise does not transform the manufacturing process into a joint production process which would require the allocation of costs. In this case, since production records clearly identify the amount of yield losses for each specific type of PET film, our allocation of yield losses to the films bearing those losses is reasonable, not arbitrary. (See Fourth Review, 61 FR at 58575- 76). It is the Department's practice to calculate costs in accordance with a respondent's normal books and records provided they are in accordance with home-country GAAP and reasonably reflect the cost associated with production and sale of the merchandise. In addition, we consider whether the producer historically used its submitted allocation methods to compute the cost of the subject merchandise prior to the investigation or review, and in the normal course of business operations. In this case in order to respond to the Department's questionnaires, SKC officials devised a management accounting methodology for allocating costs incurred in the film and chip production cost centers to individual products produced during the period of review. SKC adopted this cost accounting system to reflect a management goal (i.e., to respond to the Department). Under this system, SKC assigns the yield loss from the production of A- and B-grade films exclusively to the A-grade films. This methodology helps management to focus on the film types with low yields of A-grade film. However, notwithstanding SKC management's concern with the yield of its A-grade products, this managerial accounting methodology is not appropriate for reporting the actual costs of A- and B-grade products. As previously noted, A-and B-grade films undergo an identical production process. B- grade film is made using the same materials, on the same equipment, at the same time as the A-grade film. Because A-grade and B-grade film are made from identical production inputs, SKC's reliance on Thai Pineapple is misplaced. As the Federal Circuit noted, the production process "is entirely different for the various pineapple products produced." (See Thai Pineapple at 8.) In contrast, A-and B-grade PET films are, as in the IPSCO case, produced from an identical production process. Further, contrary to SKC's argument, the Federal Circuit's ruling in Thai Pineapple does not require the Department to revise its methodology in this case. In Thai Pineapple the Federal Circuit upheld Commerce's acceptance of the allocation methodology in the foreign producer's normal books and records because that methodology reasonably reflected the foreign producer's cost of production. See Thai Pineapple at 12-14. The Federal Circuit stated: To the extent that the records of [the foreign producer] reasonably reflect the costs of production, Commerce may rely upon them. See NTN Bearing Corp., 74 F. 3d at 1206. Conversely, if the records are not reasonably reflective of cost, Commerce may appropriately deviate from them. See Thai Pineapple at 13. In this case, as explained above, the Department has found the accounting methodology employed by SKC in its books does not reflect the actual costs of A- and B- grade products. Because A- and B- grade film undergo an identical production process using the same production inputs, the Department's allocation of scrap cost equally to A- and B- grade film is appropriate, and is consistent with the Federal Circuit's ruling in Thai Pineapple. Comment 3 Whether HSI's sales are CEP or EP transactions: Petitioners contend that the Department should treat HSI's U.S. sales as CEP transactions. In the Preliminary Results, petitioners assert that in determining whether to treat HSI's U.S. sales as EP or CEP transactions, the Department mistakenly applied the function-driven "PQ test" rather than the current analysis stipulated by the Federal Circuit in AK Steel Corporation v. United States, 226 F. 3d 1361, 1371 (Fed. Cir., 2000) (AK Steel) . Petitioners assert that the Department's use of the PK test is evinced in the verification report's discussion of the role of HSI's subsidiary in negotiating with customers (see June 20, 2001 Sales Verification Report of HSI at page 5). Petitioners further assert that HSI "led the Department" (see petitioner's August 8, 2001 case brief at page 3) down the road of the PQ test, through HSI's contention that HSA is a processor of sales related documentation. (See HSI October 10, 2001 Section A response at 10). Petitioners note that under the old PQ test, sales made by a U.S. affiliate were treated as EP transactions if the merchandise was shipped directly from the manufacturer to the U.S. buyer and if the U.S. affiliate acted only as a "processor of sales-related documentation and a communication link" with the unrelated U.S. buyer. (See Certain Stainless Steel Wire Rods from France: Final Determination of Sales at Less Than Fair Value, 58 FR 68865, 68868-68869 (December 29, 1993)). Petitioners argue that the old PQ approach has been explicitly rejected by the Federal Circuit in AK Steel. Petitioners note that the Court in AK Steel determined that "while a sale made by a producer or an exporter could be either EP or CEP, one made by a U.S. affiliate can only be CEP." (AK Steel Slip. Op. at 13.) Petitioners contend that HSI's transactions are necessarily CEP sales because the record in this case establishes that HSI's U.S. subsidiary, HS America (HSA) "sold" the merchandise to the unaffiliated U.S. buyer. Petitioners note that HSA recorded each of the transactions in question in its accounting records, and that HSA is listed as the purchaser on HSI's invoices. Petitioners further note that HSA served as the importer of record, resold the merchandise to the U.S. customer, received payment from the unaffiliated U.S. customer, and deposited payment into its bank account. Petitioners note that a fact pattern similar to the one in this case existed in Cement from Mexico. (See Final Results for the Administrative Review of Gray Portland Cement and Clinker from Mexico, 66 FR 14889 (March 14, 2001) and accompanying Decision Memo at Comment 14 (Cement from Mexico)). In Cement from Mexico the unaffiliated U.S. customer placed its order with the foreign producer's U.S. affiliate, and the U.S. producer processed the orders. The merchandise was then shipped directly from the foreign customer to the U.S. customer with the U.S. affiliate acting as the importer of record. The U.S. affiliate than issued an invoice directly to the unaffiliated U.S. customer and received payment from the unaffiliated U.S. customer. Petitioners note that the Department classified these sales as CEP transactions. Petitioners maintain that because HSA sold the merchandise to the unaffiliated U.S. buyer, processed the order, served as the importer of record, issued an invoice to the unaffiliated U.S. buyer, received payment from the unaffiliated U.S. buyer, and deposited payment into HSA's own account, the record in this case establishes that HSA "bought" the merchandise from HSI and "sold" it to the unrelated U.S. buyer. Following the precedent established in AK Steel, petitioners conclude that the Department should reclassify HSI's U.S. sales as CEP transactions. HSI contends that the Department correctly treated its U.S. transactions as EP sales. HSI asserts that the controlling issue for deciding whether the transaction is EP or CEP is determining where the sale is transacted and what entity actually made the sale to the unaffiliated U.S. customer. Under the statute and "longstanding administrative practice," (see HSI August 13, 2001 rebuttal brief at page 7) HSI argues that EP classification is appropriate where the sale is made "outside of the United States" while constructed export price is appropriate if the sales are made "by or on behalf of the foreign producer or exporter." (See 19 U.S.C. § 1677a(a).) HSI contends that the record in this case establishes that HSI (and not HSA) made the sale to the unaffiliated customer and that the sale was thereby made "outside of the United States." HSI notes that negotiations regarding sales terms (e.g., price and quantity) were made directly between HSI in Korea and the unaffiliated U.S. customer. HSI further asserts that the record in this case establishes that all relevant shipping documents (i.e., bill of lading, invoice) were made by HSI and that the merchandise was shipped directly to the U.S. customer. Thus, HSI asserts that the facts of this case establish that its transactions are EP sales according to the statute. HSI further contends that petitioners reading of AK Steel "cannot be squared with the statute or legislative intent." (HSI August 13, 2001 rebuttal brief at page 8). HSI argues that the "PQ test" was clearly the law prior to enactment of the Uruguay Round Agreement Act (URAA) and was also specifically endorsed by Congress through legislation. HSI notes that the Statement of Administrative Action (SAA) accompanying the URAA states that nothing in the URAA was intended to change prior Departmental practice with respect to such classifications. (See Statement of Administrative Action Accompanying the Uruguay Round Agreements Act, (SAA) H Rep. 103-316, 103d Cong. 2d Sess. Vol 1 at 822-23 which indicates that "notwithstanding the change in terminology, no change is intended in the circumstances under which export price (formally "purchase price" versus constructed export price (formerlly "exporters sales price") are used." HSI asserts that the Department is obligated to respect Congressional endorsement of prior practice embodied in the PQ test because the statute itself specifically notes that the SAA as approved by Congress "shall be regarded as an authoritative expression by the United States concerning the interpretation and application of the Uruguay Round Agreements and this Act in any judicial proceeding in which a question arises concerning interpretation or application." See 19 U.S.C. §3512(d). HSI further notes that in promulgating the current regulations in 1997, the Department specifically endorsed past practice and indicated that codification of the PQ test was unnecessary because the test for 'indirect purchase price' is a principle that was "clearly set forth in the statute and/or the legislative history." See Antidumping Duties; Countervailing Duties, 62 FR 27296 (May 17, 1997) (final rule). Based upon the foregoing, HSI concludes that the Department correctly and lawfully applied the PQ test. Because HSI (and not HSA) was the seller of the merchandise, HSI maintains that the transaction was made outside of the United States, and that EP is the appropriate classification for the sales in question. Finally, HSI maintains that if the Department should determine to reclassify its U.S. sales as CEP transactions, the Department should apply a CEP offset pursuant to 19 U.S.C. §1677b(a)(7)(B). HSI notes that in determining whether to apply the CEP offset, the Department considers the level of trade of the two markets based upon record evidence. HSI notes that for CEP transactions, the level of trade is the level of trade from the exporter to the affiliated importer while for home market transactions the level of trade is based on sales to unaffiliated customers in the home market. HSI notes that if there is a difference in level of trade between the two markets, the Department is required to the extent practicable to make a level of trade adjustment pursuant to 19 U.S.C. 1677b(a)(1)(B)(i). However, when it is not practicable to calculate a level of trade adjustment for that purpose, and when the level of trade in the home market is more remote from the factory than the CEP level of trade, HSI notes that Departmental practice is to apply a CEP offset. HSI asserts that if the Department classifies HSI's sales as CEP transactions, the facts in this case clearly support a CEP offset. HSI notes that in its October 10, 2000 Section A response, it described the selling functions performed by HSI in the home market. HSI contends that these selling functions involve a "significantly high level of activity" reflecting the fact that six manufacturers are currently competing for sales in Korea. (See HSI August 24, 2001 rebuttal brief, at page 11.) HSI contends that these selling functions include maintenance of inventories, frequent interaction with customers, provision of free samples, sales calls and demonstrations, market research, order processing in small lots, securing frequent freight and delivery arrangements, and provision of warranty services. HSI further notes that the scope of these selling services do not vary by customer category, and that a single level of trade thus exists in the home market. In contrast, HSI asserts that it performs fewer selling functions on its sales to its U.S. subsidiary because those sales involve just one customer purchasing a regular quantity of product through one channel of distribution. HSI contends that the sales negotiations, freight arrangements, and billing activities, associated with U.S. sales are "limited and routine"(see HSI August 24, 2001 rebuttal brief at page 11) as reflected in Attachment A-6 of its October 10, 2000 Section A response. HSI concludes that the level of trade in the home market is more remote from the factory than the level of trade in the United States, and that only one level of trade exists in the home market (rendering it impossible to calculate a level of trade adjustment). Based upon the foregoing, HSI asserts that the Department should grant a CEP offset should it decide to reclassify HSI's U.S. sales as CEP transactions. Department's Position: We agree with petitioners that AK Steel establishes that HSI's U.S. transactions are properly CEP transactions. Having classified those transactions as CEP sales, we agree with HSI that a CEP offset is warranted. As petitioners have noted, we determined at verification that HSA "sold" the merchandise in the United States within the meaning of AK Steel. At verification, we established that HSA issued an invoice to the U.S. customer, recorded the transaction in its records, and arranged for delivery of the merchandise. (See June 20, 2001 Sales Verification of HS Industries at page 15. (HSI Verification Report).) The record further establishes that HSA performed these services within the United States. (See HSI Verification Report, at page 5.) Following the criteria set forth in AK Steel, this constitutes a "sale" between HSI's affiliate and its U.S. customer. In AK Steel the Court noted that: CEP is the "price at which the subject merchandise is first sold in the United States."...In contrast EP is defined as the price at which the merchandise is first sold "outside the United States."....Thus the location of the sale appears to be critical to the distinction between the two categories. See AK Steel, Slip. Op. at page 11. (Original emphasis). The Court in AK Steel rejects the "functional approach" articulated by the PQ test because Congress mandates a strict "structural" approach based upon whether the transaction occurred in the United States. Thus, in determining whether transactions are CEP or EP sales, we no longer consider "function-driven" factors such as whether the merchandise was shipped directly from HSI to the U.S. customer, or whether HSI or HSA conducted sales negotiations with the customer. Because the transaction between HSA and the U.S. customer occurred within the United States, it qualifies as a CEP sale under the "structural" approach mandated by AK Steel. As noted by the Court: Congress chose clear and unambiguous words such as "affiliated," "sold," and "in" or "outside" the United States. In no sense did it leave the distinguishing factor to the agency to identify. When...the sales at issue took place in the United States between two entities with United States addresses, one of which was an affiliate of the producer/exporter, it is contrary to the plain meaning of the statute for Commerce to nevertheless use the PQ Test to define the sales as effectively occurring outside of the United States, and thus EP sales rather than CEP sales. (AK Steel, Slip. Op. at page 13.) Moreover, HSI's assertion that Congress "endorsed" the PQ test through adoption of the SAA is contrary to the result in AK Steel. The Court held that the PQ test "is hardly consistent with the pre-1994 statute" (AK Steel, Slip. Op. at 15) and that the "distinction based upon location of the sale was already present, although less complete, in the prior version of the statute." (Id.) Based upon the foregoing, we conclude that the PQ test was not codified by Congress, and that AK Steel precludes consideration of the functional factors set forth in the PQ test. We further conclude that HSI's U.S. transactions are properly CEP transactions, because HSA sold the merchandise to its U.S. customer within the United States. We have revised our final calculations accordingly. Having reclassified HSI's sales, we agree with HSI that a CEP offset is warranted in this case. As HSI notes, to the extent practicable, we determine normal value (NV) based on sales in the comparison market at the same level of trade (LOT) as the EP or CEP transaction pursuant to section 773(a)(1)(B)(i) of the Act. The NV LOT is that of the starting price sales in the comparison market or, when NV is based on CV, that of the sales from which we derive selling, general and administrative (SG&A) expenses and profit. For CEP, it is the level of the constructed sale from the exporter to the importer. To determine whether NV sales are at a different LOT than CEP, we examine stages in the marketing process and selling functions along the chain of distribution between the producer and the unaffiliated customer. If the comparison market sales are at a different LOT, and the difference affects price comparability, as manifested in a pattern of consistent price differences between the sales on which NV is based and comparison market sales at the LOT of the export transaction, we make a LOT adjustment under section 773(a)(7)(A) of the Act. Finally, for CEP sales, if the NV level is more remote from the factory than the CEP level and there is no basis for determining whether the differences in the levels between NV and CEP affect price comparability, we adjust NV under section 773(A)(7)(B) of the Act (the CEP offset provision). See, e.g., Certain Carbon Steel Plate from South Africa, Final Determination of Sales at Less Than Fair Value, 62 FR 61731 (November 19, 1997). In the home market, HSI was responsible for maintaining inventories, securing delivery arrangements, and billing customers. For CEP sales, HSA performed these selling functions. The differences in selling functions performed by HSI for home market and CEP transactions indicate that home market sales involved a more advanced stage of distribution than CEP sales since HSI provided a greater degree of services on its home market sales then it did on its CEP sales. Because we compared these CEP sales to HM sales at a different LOT, we examined whether a LOT adjustment may be appropriate. In this case, HSI sold at one LOT in the home market; therefore, there is no demonstrated pattern of consistent price differences between LOTs. (See HSI October 10, 2001 Section A response at page 10). Further, we do not have the information which would allow us to examine pricing patterns of HSI's sales of other similar products, and there is no other record evidence on which such an analysis could be based. Because the data available do not provide an appropriate basis for making a LOT adjustment but the LOT in Korea for HSI is at a more advanced stage than the LOT of its CEP sales, a CEP offset is appropriate in accordance with section 773(a)(7)(B) of the Act. In accordance with section 772(d)(1)(D) of the Act, we based the CEP offset amount on the amount of home market indirect selling expenses, and limited the deduction for home market indirect selling expenses to the amount of indirect selling expenses deducted from CEP. Comment 4: Revocation of Order with respect to HSI Petitioners object to revocation of the order with respect to HSI. Petitioners contend that the past zero margins calculated for HSI provide insufficient assurance that HSI will not sell at prices below fair value in the future. Petitioners assert that the first two years in which the Department determined zero margins for HSI (see Seventh and Eighth Reviews) were improperly based upon EP rather than CEP. Petitioners maintain that this "methodological flaw" underlies the current review as well, thereby casting serious doubt as to whether HSI's past margins are reflective of its normal commercial activity. Petitioners note that recent Chinese, Indian and European Commission (EC) antidumping determinations found antidumping margins for HSI. (See July 20, 2001 Commission of the European Communities on Imports of Polyethylene Terephthalate Film Sheet and Strip Originating in India and the Republic of Korea, (attached as Appendix 1 of Petitioners August 8, 2001 case brief); see also, May 10, 2001 Notification of Dumping by Government of India (attached as Appendix 2 of HSI August 8, 2001 case brief); and see September 2, 2000 Commercial Information Circular No. 116/00 concerning Final Determination of the Anti- dumping Investigation on Strip of Polyethylene Terephthalate from the Republic of Korea (attached as Appendix 3 of Petitioners August 8, 2001 case brief).) Petitioners argue that these determinations of dumping evince "a pattern of dumping" and provide "a strong reason to believe that HSI will divert shipments from other international markets to the United States, and use aggressive pricing to increase U.S. sales." (See petitioner August 8, 2001 case brief, at page 6.) Petitioners cite to a February 2000 International Trade Commission Report indicating that the PET film business is associated with high fixed costs, and requires high capacity utilization. (See PET Film from Korea, U.S. International Trade Commission Inv. No. 731-TA-459 (Review), 2000 WL 235380 (February 2000) (US ITC Report).) Petitioners assert that these high fixed costs will further motivate HSI to sell at low prices in export markets. Finally, Petitioners contend that the Korean economy is in "an exceptional state of flux." (See Petitioners August 8, 2001 case brief at page 6.) Petitioners note that during the Seventh Review (which was the first review covering HSI) the Korean economy was "severely depressed." (See Petitioners August 8, 2001 case brief at page 7.) Petitioners cite to a December 13, 1997 article in the Economist ("South Korea's Meltdown") which Petitioners assert further documents the magnitude of the South Korean financial crisis. Petitioners note that during the Seventh Review the Korean exchange rate fluctuated from a low of 889 Won/$ to a high of 1692 Won/$, and resulted in "exceptionally low" (petitioner's August 8, 2001 case brief, at page 7) PET film prices in Korea. Petitioners assert that the Department's calculation of normal value for the Seventh period are therefore "unreliable" (Id.) predictors of HSI's "normal commercial activities." (Id.) Petitioners point to further fluctuations in the value of the Won from 1998 to the present and assert that this "exceptional volatility makes it very difficult to predict the pricing levels at which HSI will export PET film to the United States in the immediate future." (Id.) Because HSI's past margins provide an "unreliable basis" (Id.) for predicting HSI's future behavior, petitioners conclude that the Department should continue to apply the order against HSI. HSI asserts petitioners' case brief contains untimely factual information which the Department should reject pursuant to section 351.301(b)(2) of its Regulations. HSI notes that section 351.301(b)(2) requires parties to submit factual information within 140 days of the anniversary month. As such, HSI asserts that the deadline for submitting factual information in this case expired on December 18, 2000. HSI asserts that information submitted by petitioners at page 6 and at Appendices 1, 2, 3, 4, 5, and 6 of its August 8, 2001 case brief constitute "factual references" (see HSI August 13, 2001 rebuttal brief at page 2). (This material relates to antidumping proceedings in other countries, exchange rate fluctuations in Korea, and references to the U.S. ITC Report.) HSI notes that there are only two exceptions to the 140 day-deadline for submitting factual information. The first is "to rebut clarify or correct factual information submitted by another interested party." (HSI August 13, 2001 rebuttal brief at page 2.) HSI asserts that this exception can not apply here because pursuant to section 771(9) of the Act (19 U.S.C. §1677(9)) the Government is not an "interested party," and because petitioners have failed to precisely identify what factual information they are rebutting. Finally, HSI notes that section 351.301(c) stipulates that such factual information must be submitted within "10 days after the date such factual information is served on the interested party, or, if appropriate made available under APO to the authorized applicant." HSI notes that the information was issued "more than 30 days after the Department's preliminary results notice was issued to petitioners." (See HSI August 24, 2001 rebuttal brief, at page 4.) HSI notes that the other possible exception to the 140 day rule is when the Department specifically requests information pursuant to 19 C.F.R. §351.301(c)(2). HSI maintains that it knows of no such request in this proceeding. HSI further maintains that if the Department requests such new information, HSI should be allowed an opportunity to comment on any information submitted by the petitioners. HSI further notes that it requested revocation on June 30, 2000, and that petitioners "were afforded" until December 18, 2000 to "submit factual information that they deemed relevant." (See HSI August 24, 2001 rebuttal brief, at page 3.) HSI asserts that petitioners' failure to submit such factual information demonstrates that petitioners have "deliberately withheld such information until many months after the deadline has passed. " (Id.) HSI contends that in Brass Sheet and Strip from Canada, 63 FR 33037, (June 17, 1998) (Brass Sheet and Strip) the Department rejected "factual information pertaining to the issue of revocation and ordered it redacted from the interested party's case brief even though the information had been presented at verification pursuant to the Department's verification outline. HSI notes that the petitioners in Brass Sheet and Strip objected to the submission of new information and that the Department refused to consider that information in that review because it constituted new factual information. HSI further asserts that retaining the information submitted by petitioners would deny it the opportunity to examine the accuracy and relevance of the data submitted by petitioners. HSI asserts that it was "presumably to avoid just this type of situation that the Department originally promulgated, and continues to enforce, its deadline for the submission of factual information in administrative reviews." (See HSI August 24, 2001 rebuttal brief at pages 6-7.) HSI further asserts that it is entitled to revocation of the order, even if the Department determines to consider the factual information submitted in HSI's August 8, 2001 case brief. HSI notes that, even if its sales are classified as CEP sales, it still sold at or above normal value. Further, HSI argues that its Seventh and Eighth review margins are final, and that petitioners have no legal grounds to challenge them. HSI notes that petitioners never questioned the methodology utilized by the Department to calculate margins in the past reviews involving HSI, and contends that petitioners are legally prevented from doing so now. HSI argues that the other factors cited by petitioners relating to exchange rate fluctuations and economic conditions in Korea are also irrelevant, since the only affirmative information currently before the Department is that HSI has sold the merchandise in the United States at fair value. HSI also argues that the information submitted by petitioners fails to establish that HSI sold in third countries at dumped prices. HSI maintains "that not one of the three countries at issue has ever specifically reviewed HSI's selling practices, much less determined a positive margin for HSI." (See HSI August 13, 2001 rebuttal brief at page 5.) HSI notes that in each instance it was assigned the "all others" rate which reflects the "sales activities of other Korean respondents who were not investigated individually." (Id.) Regarding the volatility of the Korean exchange rate, HSI maintains that the Department has conducted three administrative reviews of its pricing practices and has assigned a zero margin to HSI in each of those reviews. HSI concludes that the Department should revoke the order with respect to its sales because: 1) the Department has never found it to dump subject merchandise in the United States, 2) HSI has never been found to dump PET film in any other market, 3) HSI has had zero margins in each of the last three administrative reviews covering its shipments, 4) HSI has sold PET film in commercial quantities during each of the last three periods with no party producing evidence to the contrary, and 5) there is no evidence on the record suggesting that HSI is likely to dump PET film in the future. Department's Position: We agree with HSI that it is entitled to revocation based upon its having sold the merchandise in commercial quantities at not less than normal value for three consecutive years, and absent information that it will sell at prices below NV in the future. We disagree, however, with HSI's assertion that petitioners August 8, 2001 case brief contains new factual information that, pursuant to §351.301(c) of our regulations, should be removed from the administrative record of this proceeding. None of the information provided in the petitioners' August 8, 2001 case brief calls into question whether HSI sold at prices above NV in the United States. For each of the past reviews, the Department has determined a zero margin for HSI. (See Eighth Review and Polyethylene Terephthalate Film, Sheet, and Strip from Korea; Final Results of Antidumping Duty Administrative Review, 64 FR 42670, August 5, 1999 (which covered HSI's sales for the seventh review period).) We note that reclassification of HSI's U.S. transactions as CEP sales (see our response to Comment 3) continues to result in a zero margin for HSI. Further, we note that HSI received the "all others" rate in each of the foreign antidumping investigations cited by petitioners. (See Commission of the European Communities on Imports of Polyethylene Terephthalate Film Sheet and Strip Originating in India and the Republic of Korea, the Notification of Dumping by Government of India, and the Chinese Commercial Information Circular No. 116/00 concerning Final Determination of the Anti-dumping Investigation on Strip of Polyethylene Terephthalate from the Republic of Korea.) Thus, unlike the instant review, and the Seventh and Eighth Reviews, HSI's selling practices were not specifically examined by the administering EC, Indian or Chinese authorities. We further note that the administrative record for the Seventh and Eighth Reviews are closed, and that petitioners submitted no comments in those proceedings regarding the proper classification of HSI's U.S. transactions, the fluctuation of the Korean Won, Korean economic conditions, or HSI's "normal commercial activity." Finally, while the U.S. ITC report establishes that fixed costs are high in the PET film industry, and this industry is characterized by high capital utilization, the report does not speak to HSI's pricing behavior. We continue to maintain that the results of this review, as well as the results of the Seventh and Eighth Reviews, demonstrate that HSI has sold in commercial quantities in the United States at prices above NV. Moreover, we note that HSI has agreed to immediate reinstatement of the order, as long, as any exporter or producer is subject to the order, should the Department conclude that HSI sold the subject merchandise at less than NV. We therefore determine that revocation of the order with respect to HSI is warranted. Finally, we have not removed from the record of this proceeding any part of the petitioners' August 8, 2001 case brief. In this case, the information at issue is not determinative of whether revocation is appropriate. In other words, we have determined that revocation is appropriate despite this information. Moreover, we maintain that Brass Sheet and Strip involved a different set of factual circumstances than here. In that case the respondent, attempted to submit a verification exhibit containing new factual information. (See, Brass Sheet and Strip, at 63 FR 33039.) The Department has an established precedent of not soliciting new factual information at verification, and determined that the respondent should have submitted that information earlier in the proceeding. Id. In the instant case, petitioners submitted comments on the revocation analysis employed by the Department in the Preliminary Results. Finally, we disagree with HSI's assertion that it has been denied the opportunity to comment meaningfully on the information submitted by petitioners. We note that HSI submitted such rebuttal comments at pages 4-7 of its August 13, 2001 rebuttal brief. Moreover, in its August 24, 2001 rebuttal brief, HSI had additional opportunity to comment on the information submitted in the petitioners August 8, 2001 case brief. Based upon the foregoing, we have considered the information submitted by petitioners in its August 8, 2001 case brief, and have maintained that information on the record of this proceeding. Comment 5: Calculation of SKC's CEP and CV Profit Ratios Comment 5: Petitioners argue that the Department understated SKC's CEP and CV profit by failing to add the U.S. revenues realized by SKC for interest revenue, duty drawback, and billing adjustments to the gross price. Petitioners further contend that the Department understated SKC's CV profit by failing to add duty adjustments to the home market gross price. Petitioners assert that the Department should adjust its calculation of SKC's CEP and CV profit to account for these additions to gross price. SKC asserts that no further adjustment to the CV profit calculation is warranted because the Department has already accounted for home market duty adjustments in its calculations. Department's Position: We agree with petitioners that the revenues realized by SKC for U.S. interest revenue, duty drawback and billing adjustments should be added to gross price for purposes of calculating CEP profit. We have amended our final calculations accordingly. We agree with SKC that no further adjustment to CV profit is warranted because the Department's calculations already account for home market duty adjustments. Thus, we have made no change in our calculation of CV profit. 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)