[Federal Register Volume 64, Number 238 (Monday, December 13, 1999)]
[Notices]
[Pages 69494-69503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32225]


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DEPARTMENT OF COMMERCE

International Trade Administration
[A-570-847]


Persulfates from the People's Republic of China: Final Results of 
Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce

ACTION: Notice.

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SUMMARY: On August 6, 1999, the Department of Commerce published the 
preliminary results of its first administrative review of the 
antidumping duty order on persulfates from the People's Republic of 
China. See Persulfates from the People's

[[Page 69495]]

Republic of China: Preliminary Results of Antidumping Duty 
Administrative Review, and Partial Rescission of Administrative Review, 
64 FR 42912 (August 6, 1999). The period of review is December 27, 
1996, through June 30, 1998. Based on our analysis of comments 
received, we have made changes to the margins calculated for purposes 
of the preliminary results, including corrections of certain clerical 
errors. The final weighted-average dumping margins are listed below in 
the section entitled ``Final Results of Review.''
    We have determined that sales have been made below normal value 
during the period of review. Accordingly, we will instruct the Customs 
Service to assess antidumping duties based on the difference between 
export price and normal value.

EFFECTIVE DATE: December 13, 1999.

FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or James Nunno, AD/CVD 
Enforcement Group I, Office II, Import Administration, International 
Trade Administration, U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
2613 or (202) 482-0783, respectively.

APPLICABLE STATUTE AND REGULATIONS: Unless otherwise indicated, all 
citations to the Tariff Act of 1930, as amended (the Act), are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Act by the Uruguay Round Agreements 
Act. In addition, unless otherwise indicated, all citations to the 
Department of Commerce's (the Department's) regulations are to the 
regulations at 19 CFR Part 351 (April 1998).

SUPPLEMENTARY INFORMATION:

Background

    On August 6, 1999, the Department published in the Federal Register 
the preliminary results of the administrative review of the antidumping 
duty order on persulfates from the People's Republic of China (PRC). 
See Persulfates from the People's Republic of China: Preliminary 
Results of Antidumping Duty Administrative Review, and Partial 
Rescission of Administrative Review, 64 FR 42912 (August 6, 1999) 
(Preliminary Results). We gave interested parties an opportunity to 
comment on our preliminary results and held a public hearing on October 
28, 1999. The following parties submitted comments: FMC Corporation 
(the petitioner); Shanghai Ai Jian Import & Export Corporation (Ai 
Jian), Sinochem Jiangsu Wuxi Import & Export Corporation (Wuxi), and 
Shanghai Ai Jian Reagent Works (AJ Works) (producer for Ai Jian and 
Wuxi) (collectively, the respondents).
    The Department has now completed this administrative review in 
accordance with section 751(a) of the Act.

Scope of Review

    The products covered by this review are persulfates, including 
ammonium, potassium, and sodium persulfates. The chemical formula for 
these persulfates are, respectively, (NH sub4 ) sub2 S sub2 O sub8 , K 
sub2 S sub2 O sub8 , and Na sub2 S sub2 O sub8 . Ammonium and potassium 
persulfates are currently classified under subheading 2833.40.60 of the 
Harmonized Tariff Schedule of the United States (HTSUS). Sodium 
persulfate is classified under HTSUS subheading 2833.40.20. Although 
the HTSUS subheadings are provided for convenience and customs 
purposes, our written description of the scope of this review is 
dispositive.

Export Price

    For both Ai Jian and Wuxi, we calculated export price (EP) in 
accordance with section 772(a) of the Act, because the subject 
merchandise was sold directly to the first unaffiliated purchaser in 
the United States prior to importation and constructed export price 
(CEP) methodology was not otherwise warranted, based on the facts of 
record. We calculated EP based on the same methodology used for 
purposes of the preliminary results.

Normal Value

    Section 773(c)(4) of the Act requires the Department to value the 
non-market economy (NME) producer's factors of production, to the 
extent possible, in one or more market economy countries that: (1) are 
at a level of economic development comparable to that of the NME, and 
(2) are significant producers of comparable merchandise. As stated in 
the Preliminary Results, the Department has determined in this case 
that India meets both statutory requirements for an appropriate 
surrogate country. For purposes of the final results, we have continued 
to rely on India as the surrogate country. Accordingly, we have 
calculated normal value (NV) using Indian surrogate values for the PRC 
producers' factors of production except in those instances where an 
input was sourced from a market economy and paid for in a market 
economy currency.
    We used the same methodology for calculating NV as that described 
in the Preliminary Results, with the following exceptions: (1) We 
corrected our adjustment for the sales and excise taxes included in the 
values reported in Chemical Weekly because of an inadvertent error (see 
comment 12 below); (2) we adjusted the calculation of freight costs 
incurred between the suppliers of packing materials (i.e., polyethylene 
and woven bags, polyethylene sheet, wood pallets, fiberboard, and 
polypropylene sacks) and AJ Works in order to correct certain errors 
made in the preliminary results calculations; (3) we included AJ Works' 
indirect labor hours in our calculation of labor expenses, which were 
inadvertently omitted from our preliminary results calculations (see 
comment 10 below); (4) we adjusted AJ Works' reported indirect labor 
hours to account for the labor hours of additional employees that were 
previously not included (see comment 10 below); (5) we reclassified 
certain depreciation expenses from Calibre Chemicals Pvt. Limited's 
(Calibre's) financial statements as selling, general, and 
administrative expenses (SG&A) expenses, which results in a change to 
the overall factory overhead and SG&A ratios (see comment 7 below). See 
the U.S. Price and Factors of Production Adjustments for the Final 
Results (Calculation Memorandum) and Final Results Factors Valuation 
Memorandum from the Team to the File (Factors Memorandum) dated 
December 6, 1999, for a more detailed explanation of these calculation 
changes.

Analysis of Comments Received

Comment 1: Construction Costs for New PRC Factory and Alleged Fire at 
the New Facility

    The petitioner argues that the Department failed to incorporate in 
the normal value calculation costs related either to the construction 
of a new factory or to a fire that allegedly occurred at AJ Works 
during the period of review (POR) and, as a result, the normal value 
was understated. The petitioner further argues that, despite the 
petitioner's requests, the Department failed to obtain from AJ Works 
information related to these two events. The petitioner asserts that 
the Department has an obligation to investigate antidumping cases and 
to assign fair dumping margins, and that the failure to obtain data 
requested by the petitioner constitutes an abuse of discretion. The 
petitioner cites several court cases in which it claims that the Court 
of International Trade (CIT) required the Department to perform an 
investigation of the facts related to the issues of the related 
antidumping

[[Page 69496]]

proceedings (e.g., Wieland-Werke AG v. United States, 4 F. Supp. 2d 
1207 (CIT 1998), Rhone-Poulenc, Inc. v. United States, 927 F. Supp. 
451, 456 (CIT 1996), and Freeport Minerals Company v. United States, 
776 F.2d 1029, 1034 (Fed. Cir. 1985)).
    The petitioner states that the initial operations of a new 
production plant have an adverse effect on all categories of 
manufacturing costs. In particular, the petitioner notes that during 
the initial phase of production, the production volume will generally 
be lower than normal, which results in higher per-unit fixed costs, 
most notably depreciation expenses. Similarly, the petitioner states 
that a company that experienced a fire will have higher per-unit costs 
due to the disruption in production. In a market-economy case, the 
petitioner asserts, costs related to a new factory or a fire are 
captured in the cost of manufacturing of a market-economy respondent. 
In this case, the petitioner argues, if the Department does not account 
for such increases in AJ Works' cost of manufacturing, the normal value 
for the respondents will be understated.
    The petitioner contends that the Department should have issued a 
questionnaire to AJ Works in order to confirm that a fire did occur at 
AJ Works' production facility and obtain sufficient information to 
allow the Department to value the costs related to the fire. With 
respect to the construction of a new factory, the petitioner submits 
that the Department must develop a methodology for calculating 
additional costs and increase AJ Works' normal value accordingly.
    The respondents rebut that the petitioner's concerns about costs 
related to the construction of a new factory or an alleged fire are 
irrelevant in an NME proceeding. The respondents argue that although AJ 
Works' accounting records may indicate additional factory overhead and 
SG&A expenses resulting from costs related to the construction of a new 
factory or a fire, such expenses were incurred in NME currencies and 
are, therefore, considered by the statute to be unreliable for purposes 
of calculating dumping margins. Citing the preamble to the Department's 
regulations in which the Department stated that the ``use of an NME 
price as a benchmark is inappropriate because it is the unreliability 
of NME prices that drives us to use the special NME methodology in the 
first place,'' the respondents argue that the Department does not 
consider the expenses incurred by the NME producer relevant to the 
surrogate value analysis. See Antidumping Duties: Countervailing 
Duties; Final Rule, 62 FR 27296, 27367-27368 (May 19, 1997) (Final 
Rule). Thus, the respondents argue that the petitioner's proposal to 
add ``factors of construction'' to the calculation of AJ Works'' normal 
value is contrary to statutory intent and the Department's established 
NME practice of disregarding transactions that involve non-market 
economy prices.
    Furthermore, the respondents claim that the Department does not 
permit an adjustment of the surrogate factory overhead, SG&A or profit 
values merely because the circumstances of the surrogate producer are 
different from that of the NME respondent's experience. The respondents 
cite the preamble to the Department's regulation in which the 
Department stated that ``we do not believe it is appropriate to check 
surrogate values {for manufacturing overhead, general expenses, and 
profit} against the NME respondents' experience.'' Final Rule, 62 FR at 
27366.
    Regarding the petitioner's argument concerning the Department's 
obligation to investigate claims made by the petitioner, the 
respondents assert that in the same court cases cited by the 
petitioner, the CIT did not obligate the Department to investigate 
information that is irrelevant to the Department's determination or 
based on speculation. In the present case, the respondents continue, 
the petitioner's concerns about AJ Works' construction and fire-related 
costs are purely speculative and contradicted by the record evidence 
that has been fully verified by the Department. Accordingly, the 
respondents urge the Department to reject the petitioner's proposal to 
calculate ``factors of construction'' or costs related to an alleged 
fire.

DOC Position

    We disagree with the petitioner that the normal value we calculated 
for AJ Works in the preliminary results is understated. In accordance 
with section 773(c)(1) of the Act, we calculated normal value based on 
AJ Works' factors of production, including amounts for direct 
materials, labor hours, energy, and surrogate values for factory 
overhead, SG&A and profit. The petitioner requests that we increase the 
normal value to capture additional costs AJ Works incurred related to 
the construction of a new factory and an alleged fire. The petitioner's 
argument, however, has no statutory basis. The NME normal value 
provisions of the statute neither direct us nor provide us with a 
method by which to make the types of adjustments requested by the 
petitioner. In addition, such an adjustment is not in accordance with 
Department practice.
    With respect to the petitioner's argument concerning the increase 
in the per-unit fixed costs, in particular depreciation expenses, 
during an initial phase of production, we note that such expenses are 
included in factory overhead, which in this review is based on the 
surrogate overhead expenses of Calibre. We do not find it appropriate, 
however, to adjust Calibre's factory overhead costs to match the 
experience of AJ Works. In this regard, we cite to the Department's 
position in Tapered Roller Bearings and Parts Thereof, Finished or 
Unfinished, From Romania: Final Results and Rescission in Part of 
Antidumping Duty Administrative Review, 61 FR 51427 (October 2, 1996) 
(TRBs from Romania). In that review, we stated, ``[t]he Department 
normally bases normal value completely on factor values from a 
surrogate country on the premise that the actual experience in the NME 
cannot meaningfully be considered.'' See TRBs from Romania, 61 FR at 
51429. Based on this principle, the Department articulated in other 
cases that with respect to overhead and SG&A surrogate values, the 
Department does not customize the values to match the circumstances of 
the PRC producer. See e.g., Tapered Roller Bearings and Parts Thereof, 
Finished and Unfinished, From the People's Republic of China: Final 
Results of 1996-1997 Antidumping Duty Administrative Review and New 
Shipper Review and Determination Not To Revoke Order in Part, 63 FR 
63842, 63853 (November 17, 1998); Certain Helical Spring Lock Washers 
From the People's Republic of China: Final Results of Antidumping 
Administrative Review, 61 FR 41994, 41999 (August 13, 1996). 
Accordingly, we find no basis to attempt to manipulate Calibre's 
financial data to capture construction-related costs incurred by AJ 
Works.
    Contrary to the petitioner's claim, none of the court cases cited 
by the petitioner requires that we obtain information that is not 
relevant to our determination. Although we do have information on the 
record that AJ Works began production in a new facility during the POR, 
we did not obtain further information concerning costs related to the 
new production facility because such information is not relevant for 
purposes of calculating normal value within the parameters of our NME 
calculation methodology. For the same reason, we did not obtain 
information on whether AJ Works experienced a fire during the POR.

[[Page 69497]]

Comment 2: Whether to use Calibre's 1997 or 1998 Data, or the Average 
for Purposes of Calculating Factory Overhead, SG&A, and Profit

    To value the respondents' factory overhead, SG&A and profit for 
purposes of the preliminary results, we calculated surrogate ratios 
based on Calibre's financial statements for fiscal years 1997 and 1998. 
(Calibre's fiscal year begins on April 1 and ends on March 30.) Both 
the petitioner and the respondents disagree with the Department's 
calculation of these surrogate ratios based on the average of 1997 and 
1998 data.
    The petitioner argues that if the Department does not include 
additional costs related to the construction of the new factory in the 
calculation of normal value, the Department, as an alternative, should 
use Calibre's 1997 financial data, as opposed to an average of 1997/
1998 data. The petitioner contends that the data from Calibre's 1997 
fiscal year is more reflective of AJ Works' experience of constructing 
a new factory during the POR, because information from Calibre's 
financial statements suggests that Calibre expanded its production 
facilities during its 1997 fiscal year. Specifically, the petitioner 
argues that certain overhead costs decreased from Calibre's 1997 fiscal 
year to its 1998 fiscal year, although its production volume increased. 
The data also indicate that production capacity increased, while 
expenses related to subcontracting labor decreased during that same 
period.
    The petitioner asserts that the Department has broad discretion in 
the selection and application of surrogate values, and that it may 
reject certain portions of Calibre's financial statements, or all of 
its financial statements, if it determines that these data are not 
reliable indicators of surrogate values for factory overhead, SG&A, or 
profit. The petitioner cites Nation Ford Chemical Company v. United 
States, 166 F.3d 1373, 1377 (Fed. Cir. 1999) (Nation Ford), in which 
the Department maintained that it ``has the discretion to use whatever 
values are the most reflective of the experience of the NME producer.'' 
Therefore, because Calibre's data indicate that it expanded its 
production facility during the 1997 fiscal year, the petitioner argues 
that the Department should use only the 1997 data in its calculations 
in order to reflect accurately the experience of AJ Works.
    The respondents, on the other hand, argue that the Department 
should calculate surrogate overhead, SG&A expenses, and profit based 
only on Calibre's 1998 data because Calibre's 1998 fiscal year is 
contemporaneous with most of the respondents' U.S. sales. The 
respondents state that for administrative reviews, the Department 
calculates entry-specific dumping margins based on the date of each 
U.S. sale, in accordance with section 751(a)(2)(A) of the Act and 19 
CFR 351.414. The respondents claim that the fundamental reasoning 
behind this methodology is to determine whether the specific U.S. sale 
is being sold at less than fair value when compared to the normal value 
of merchandise produced contemporaneously with the U.S. sale. The 
respondents contend that the Department's decision to average Calibre's 
1997 and 1998 financial data creates a distorted normal value that is 
not contemporaneous with the sales of subject merchandise.
    The petitioner objects to the respondents' argument to use only 
Calibre's 1998 data, and argues that contemporaneity is more accurately 
defined by the review period itself, not the period of time within a 
review period that a respondent made its sales to the United States. 
The petitioner asserts that the respondents' argument is not supported 
by case precedence, and that the proposed methodology of choosing 
surrogate value data based on the date of the U.S. sale can allow an 
NME respondent to manipulate its future U.S. sale dates based on the 
available surrogate value data. The petitioner also argues that in 
addition to contemporaneity, accuracy is an important factor in 
selecting surrogate value data.

DOC Position

    We disagree with both the petitioner and the respondents. First, we 
address the petitioner's argument that factory overhead expenses should 
be based solely on Calibre's 1997 fiscal year. The POR in this review 
overlaps both Calibre's 1997 and 1998 fiscal years. Calibre's 1997 
fiscal year covers three months of the POR while Calibre's 1998 fiscal 
year falls entirely within the POR. In valuing factors of production, 
we select, where possible, surrogate values that are representative of 
a range of prices either within the POR or most contemporaneous with 
the POR. In this case, both Calibre's 1997 and 1998 fiscal years are 
contemporaneous with the POR.
    With respect to the petitioner's argument that Calibre's 1997 
fiscal year is most reflective of AJ Works' experience during the POR 
because it allows the Department to estimate the increase in AJ Works' 
costs, we emphasize the Department's consistent practice with regard to 
this matter discussed above under Comment 1. Specifically, as noted 
above, the Department does not tailor the factory overhead and SG&A 
expenses of a surrogate company to match the experience of the PRC 
producer. The U.S. Court of Appeals upheld in Nation Ford that, 
although ``a surrogate value must be as representative of the situation 
in the NME country as is feasible,'' we are not required to ``duplicate 
the exact production experience of the NME producer'' at the expense of 
choosing a surrogate value that most accurately represents the fair 
market value of the various factors of production in the surrogate 
country. Further, the U.S. Court of Appeals upheld the decision made in 
Magnesium Corp. of Am. v. United States, 166 F. 3d 1364 (CAFC 1999), 
that a factors of production analysis ``does not require item-by-item 
accounting for factory overhead.'' Therefore, for purposes of 
calculating surrogate factory overhead based on Calibre's data, we find 
it inappropriate to attempt to match Calibre's factory overhead 
expenses to AJ Works' production experience.
    Regarding the respondents' arguments, we disagree that the use of 
both 1997 and 1998 data distorts normal value and is inconsistent with 
the Department's practice. First, the respondents incorrectly argue 
that 19 CFR 351.414 directs the Department to compare each U.S. sale to 
the normal value that is contemporaneous with the date of U.S. sales. 
This section of our regulations applies to the calculation of normal 
value in a market economy, which is not applicable in this 
administrative review, because AJ Works is located in an NME country.
    In an NME proceeding, contemporaneity is defined by the POR itself, 
not the period of time within the POR that a respondent made its sales 
to the United States. As noted above, the POR in this instance is 
within both Calibre's 1997 and 1998 fiscal year periods. Furthermore, 
as the petitioner notes, in selecting surrogate values, we consider the 
accuracy of the data in addition to contemporaneity. As we noted in the 
Preliminary Results, because of the substantial differences between 
Calibre's 1997 and 1998 overhead and SG&A data, we determined that it 
was appropriate to average the 1997 and 1998 fiscal years in order to 
smooth out the effect of such differences. Thus, while Calibre's fiscal 
year 1998 fully coincides with the POR, the POR in fact is within both 
Calibre's 1997 and 1998 fiscal year periods and using both fiscal years 
results in the most accurate surrogate values for factory overhead and 
SG&A.

[[Page 69498]]

    Based on the foregoing, we continued to find that averaging 
Calibre's 1997 and 1998 fiscal year data is most appropriate and, 
therefore, have continued to use the average data for purposes of 
calculating surrogate factory overhead, SG&A, and profit ratios.

Calculation of Factory Overhead

Comment 3: Allocation of Factory Overhead Expenses Between Subject and 
Non-Subject Merchandise

    For purposes of our preliminary results, we allocated Calibre's 
total factory overhead expenses between subject and non-subject 
merchandise based on raw material input quantities as reported in the 
company's financial statements. The respondents contend that the 
Department's allocation methodology is unsupported by record evidence 
and inconsistent with Department practice. First, the respondents argue 
that neither the Department nor the petitioner provided any documentary 
support for using raw material input quantity as the allocation basis. 
In particular, the respondents claim the Department's analysis fails to 
explain why it is more appropriate to use relative input quantities 
rather than input values as the allocation basis.
    In fact, the respondents submit, the Department has a preference 
for a value-based allocation methodology where two co-products produced 
from a common production process vastly differ in value. In support of 
their contention, the respondents cite Polyvinyl Alcohol From Taiwan: 
Final Results of Antidumping Duty Administrative Review, 63 FR 32810, 
32815 (June 16, 1998) (PVA from Taiwan), in which the Department 
determined that the production costs for two co-products were properly 
allocated based on the relative sales value of the two co-products. In 
the present case, the respondents claim that the sales value of 
Calibre's non-subject merchandise is significantly higher than the 
sales value of its subject merchandise. The respondents base this claim 
on a comparison of the respondents' POR-average unit price of the 
subject merchandise to the 1998 U.S. import values of the non-subject 
merchandise. Given the greater revenue-generating power of non-subject 
merchandise, the respondents assert that it is more appropriate to 
allocate costs based on value. Accordingly, the respondents argue that 
the Department should allocate Calibre's overhead costs between subject 
and non-subject merchandise based on the relative raw material input 
value.
    The petitioner maintains that the Department's allocation 
methodology is supported by record evidence, and is based on sound cost 
accounting principles. In particular, the petitioner points to a 
February 16, 1999, letter placed on the record from an FMC Corporation 
official supporting the use of relative raw material consumption 
amounts as an allocation basis. The petitioner further argues that 
Calibre's subject and non-subject merchandise cannot be considered co-
products. The petitioner, citing PVA from Taiwan, notes that co-
products are ``produced simultaneously up to a point, after which they 
become separated from one another.'' 61 FR 14064, 14071. In this case, 
the petitioner claims, Calibre's non-subject products require different 
raw materials than the subject merchandise, and, therefore, the 
products cannot be commingled during production. Therefore, the 
petitioner concludes by asserting that a value-based allocation 
methodology is inappropriate with respect to Calibre's overhead costs.
    According to the petitioner, the most common basis for allocating 
costs between products that are not co-products is machine hours, 
direct labor hours, production volume, or raw material input 
quantities. In this case, the petitioner observes, among these factors, 
the only information available in Calibre's financials statements is 
the raw material input quantities. Therefore, the petitioner submits 
that the Department's allocation of Calibre's overhead expenses based 
on raw material input quantity is the only reasonable way to allocate 
costs in this case.

DOC Position

    Calibre's financial statements do not contain sufficient 
information for us to determine whether the company's non-subject 
products are co-products in the production process of persulfates. The 
Department's regulations, however, provide generally that, in 
determining the appropriate method for allocating costs among products, 
we ``may take into account production quantities, relative sales 
values, and other quantitative and qualitative factors associated with 
the manufacture and sales of the subject merchandise.'' See 19 CFR 
351.407(c). In this case, Calibre's factory overhead costs to be 
allocated include depreciation costs, consumable stores, repairs and 
maintenance costs, and other manufacturing overheads. These types of 
overhead items are associated with the production volume of each 
product and, as such, can be measured either by the relative raw 
material input quantities or the output quantity of each finished 
product. Calibre's financial statements do not provide the relative 
production quantity of each finished product, but do provide the 
relative raw material input usage. Accordingly, given the data 
available from Calibre's financial statements, we find that relative 
raw material input usage provides the most reasonable and accurate 
basis to allocate overhead costs between Calibre's products.

Comment 4: Calculating Factory Overhead as a Percentage of Material, 
Labor, and Energy Costs

    The respondents contend that the Department improperly calculated 
the surrogate factory overhead ratio by dividing Calibre's overhead 
expenses by material costs only. The respondents state that the 
Department's established practice in this regard is to divide the 
surrogate company's overhead costs by the cost of materials, labor, and 
energy. This methodology, the respondents argue, is based on the 
fundamental understanding that overhead costs relate to more than just 
material costs, but also to labor and energy costs. According to the 
respondents, the relative raw material consumption quantities, which 
the Department used to allocate Calibre's overhead expenses between its 
subject and non-subject merchandise, can also be applied to Calibre's 
labor and energy costs in order to calculate a denominator inclusive of 
material, labor, and energy costs.
    The petitioner counters that there is no information available upon 
which to allocate Calibre's labor and energy costs among the company's 
finished products. The petitioner points out that Calibre's financial 
statements do not identify the labor expenses or electricity usage for 
each finished product. Accordingly, the petitioner submits that the 
methodology used by the Department provides the most accurate 
calculation possible of the overhead costs incurred for the production 
of persulfates.

DOC Position

    We disagree with the respondents that our calculation methodology 
with respect to the surrogate factory overhead ratio is improper or 
distorted. Although the respondents are correct that the Department's 
standard methodology of calculating overhead expenses is to divide the 
total factory overhead expenses by the total material, energy and labor 
costs, the Department has the discretion to adopt alternative 
approaches of calculating factory overhead, SG&A and profit ratios 
depending on the specific facts of the case. See, e.g., Manganese Metal 
From

[[Page 69499]]

the People's Republic of China: Final Results of Second Antidumping 
Administrative Review, 64 FR 49447, 49456 (September 13, 1999), in 
which the Department derived labor-exclusive surrogate overhead and 
SG&A percentages. In this review, as explained in our Preliminary 
Results, we determined that because of the differing cost structures 
between Calibre's production of subject and non-subject merchandise, it 
was more appropriate first to allocate Calibre's overhead expenses 
between its product lines. Given the available data in Calibre's 
financial statements and information on the record, we determined that 
raw material input quantity is the most accurate basis to allocate 
overhead expenses. Specifically, we defined overhead as a percentage of 
Calibre's raw material costs. We then applied this ratio directly to 
the raw material costs that we calculated based on AJ Works' reported 
factors of production. Based on the foregoing, we maintain that our 
preliminary results calculation of the factory overhead rate provides 
the most reasonable methodology based on the information on the record. 
With respect to labor and energy costs, however, there is no 
information available from which to allocate these costs among the 
company's finished products, and, hence, no way to use labor and energy 
costs along with material costs in order to calculate overhead.

Calculation of SG&A Expenses

Comment 5: Appropriate Indian Surrogate Company

    For purposes of the preliminary results, we based SG&A expenses on 
Calibre's financial data and calculated the expenses as a percentage of 
total cost of manufacturing, in accordance with the Department's 
standard methodology. The petitioner argues that Calibre's SG&A data is 
unreliable because it cannot be viewed as representative of the 
operations of AJ Works. The petitioner bases its argument on two 
grounds. First, the petitioner claims that, as with factory overhead 
costs, Calibre's dissimilar cost structure between subject and non-
subject merchandise distorts the company's SG&A expenses, when 
calculated using the Department's traditional methodology. 
Specifically, the petitioner asserts that an allocation of SG&A 
expenses on the basis of Calibre's cost of manufacturing would 
overstate the amount of the SG&A expenses attributed to non-subject 
merchandise due to the fact that the majority of Calibre's cost of 
manufacturing is made up of raw materials costs for non-subject 
merchandise. The petitioner observes that there is no reasonable basis 
upon which to allocate the total SG&A expenses between persulfates and 
non-subject merchandise because, by their nature, SG&A expenses are 
unrelated to the immediate manufacturing process and any allocation 
methodology is wholly arbitrary.
    The petitioner further notes that in a market economy case it does 
not matter that the respondent may manufacture a variety of diverse 
products because the SG&A factor is based on the actual expenses 
incurred by the market economy respondent. In a non-market economy 
case, however, the petitioner asserts that the SG&A factor is based on 
the SG&A experience of a surrogate company whose operations may not 
accurately reflect those of the NME producer, and that such a situation 
applies to this administrative review.
    Second, the petitioner claims that Calibre's SG&A rate, when 
compared to other representative benchmark rates, demonstrates that 
Calibre's data grossly understate the SG&A rate for persulfates 
production. Specifically, the petitioner makes a comparison of 
Calibre's data to both the SG&A data of National Peroxide, an Indian 
producer of comparable merchandise that the Department relied upon in 
the original investigation, and to the SG&A data of the Indian 
chemicals and metals industry as reflected in the Reserve Bank of India 
Bulletin (RBI) data.
    Accordingly, based on the foregoing reasons, the petitioner submits 
that we should reject Calibre's SG&A data and rely upon National 
Peroxide's SG&A data as the most accurate surrogate value available in 
this review. The petitioner cites a number of past cases in support of 
its position that the Department has wide discretion in the selection 
of surrogate values, including using a mix of financial data of two 
different surrogate companies.
    The respondents counter that the petitioner failed to provide any 
legal or factual support for its argument that Calibre's data is 
unreliable. As a legal matter, the respondents emphasize that the 
Department's NME practice establishes a clear preference for selecting 
surrogate value sources that are producers of subject merchandise. The 
respondents argue that it would only be necessary to use data from a 
surrogate producer of comparable merchandise if the data of the 
surrogate producer of the identical merchandise is incomplete, 
distorted, or not contemporaneous. In this instance, the respondents 
assert that the petitioner has not demonstrated that Calibre's data is 
incomplete or distorted for purpose of calculating the surrogate SG&A 
expense ratio. Therefore, the respondents urge the Department to reject 
the petitioner's argument and continue to rely upon Calibre's SG&A 
data.

DOC Position

    We disagree with the petitioner that Calibre's financial data is 
inappropriate for purposes of calculating a surrogate SG&A ratio. 
First, we address the petitioner's assertion that Calibre's SG&A data 
is distorted because it overstates the amount of the SG&A expenses 
attributed to non-subject merchandise and understates the amount 
attributed to subject merchandise. As the petitioner notes, in market-
economy cases, the Department's long-standing practice with respect to 
allocating general expenses to individual products is to calculate a 
rate by dividing the company's general expenses by its total cost of 
sales, as reported in the respondent's audited financial statements. 
See the Department's standard Section D Cost of Production and 
Constructed Value questionnaire at page D-17. This method recognizes 
general expenses are costs that relate to the company's overall 
operations, rather than to the operations of a division within the 
company or to a single product line. See Final Determinations of Sales 
at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products, 
Certain Cold-Rolled Carbon Steel Flat Products, and Certain Corrosion-
Resistant Carbon Steel Flat Products From Japan, 58 FR 37154, 37166 
(July 9, 1993); and Notice of Final Determination of Sales at Less Than 
Fair Value: Stainless Steel Wire Rod From Sweden, 63 FR 40449, 40459 
(July 29, 1998). Although this proceeding involves a non-market economy 
country, the immediate issue at hand involves deriving an SG&A ratio 
using the financial data of a market-economy company. Unlike factory 
overhead costs, SG&A expenses are not considered to be directly related 
to the production of merchandise. In fact, in most cases, general 
expenses are so indirectly related to a particular production process 
that the most reasonable allocation basis is the company's total cost 
of manufacturing. Thus, while it is appropriate to allocate the factory 
overhead costs between subject and non-subject merchandise on a basis 
other than cost, we find no basis to allocate SG&A expenses to specific 
product lines on any other basis.
    While we recognize that Calibre's financial data does not mirror 
the actual experience of AJ Works, this does not

[[Page 69500]]

render Calibre's data unreliable for purposes of calculating a 
surrogate SG&A ratio within the context of the Department's NME 
methodology. As discussed above under comments 1 and 2, ``[t]he 
Department normally bases normal value completely on factor values from 
a surrogate country on the premise that the actual experience in the 
NME cannot meaningfully be considered.'' See TRBs from Romania, 61 FR 
at 51429. Therefore, with respect to overhead and SG&A surrogate 
values, the Department does not tailor the values to match the 
circumstances of the PRC producer. Accordingly, the fact that Calibre's 
financial data may not reflect AJ Works' actual experience provides no 
basis to conclude that Calibre's data is unreliable.
    In this case, we have on the record three different sources for 
valuing factory overhead, SG&A and profit ratios: the financial 
statements of Calibre, the financial statements of National Peroxide, 
and the RBI data. In the less-than-fair-value (LTFV) proceeding, the 
Department rejected RBI data as a basis for surrogate values and, 
instead, used the financial data of National Peroxide. We determined 
that, in the absence of data from a surrogate producer that produced 
merchandise that was identical to persulfates, it was necessary to use 
data of a surrogate producer that produced comparable merchandise. In 
the instant review, we have on the record the financial statements of 
an Indian persulfates producer. As the respondents note, the 
Department's NME practice establishes a preference for selecting 
surrogate value sources that are producers of identical merchandise, 
provided that the surrogate data is not distorted or otherwise 
unreliable. For the reasons discussed above, we do not find Calibre's 
data distorted or otherwise unreliable.
    With respect to the cases cited by the petitioner, we note that 
with the exception of Beryllium Metal and High Beryllium Alloys From 
the Republic of Kazakstan, 62 FR 2648 (January 17, 1997) (Beryllium 
Metal From Kazakstan), none of the cases involved relying on multiple 
sources for factory overhead, SG&A and profit ratios. In Beryllium 
Metal From Kazakstan, we calculated SG&A and profit ratios based on 
financial data from the primary surrogate country, Peru. With respect 
to overhead, we relied on financial data from a producer in Brazil 
because there was a lack of detailed overhead cost data from Peru. In 
the instant review, Calibre's financial statements provide sufficient 
detailed data for us to calculate an SG&A ratio in accordance with our 
normal methodology.
    The petitioner proposes that we value factory overhead and profit 
based on Calibre's financial statements, but value SG&A expenses based 
on National Peroxide's financial statements. We find this approach to 
be inappropriate and unwarranted. A company's profit amount is a 
function of its total expenses. Using Calibre's financial data for 
factory overhead and profit, then using National Peroxide's data for 
SG&A, as proposed by the petitioner, results in applying a profit ratio 
that bears no relationship to the overhead and SG&A ratios. In 
addition, the petitioner's approach increases the potential for double-
counting or under-counting of expenses because different companies may 
classify expenses differently.
    Accordingly, based on the foregoing considerations, we conclude 
that, in the instant review, Calibre's financial data provides the best 
available information with respect to surrogate values for factory 
overhead, SG&A and profit ratios. Therefore, for purposes of these 
final results, we have continued to rely upon Calibre's financials for 
these values.

Comment 6: Understatement of SG&A Expenses

    The petitioner argues that for purposes of the preliminary results, 
the Department understated SG&A expenses by omitting wages and salaries 
of selling and administrative personnel. The petitioner observes that 
Indian companies generally include the total salaries and wages for all 
labor (i.e., direct and indirect production labor and SG&A labor) in 
one expense category (``Employment Costs''), separate and apart from 
SG&A expenses. According to the petitioner, because the SG&A factor the 
Department used for purposes of the preliminary results did not include 
any portion of the ``Employment Costs'' category, we failed to include 
any costs for selling and administrative personnel in the calculation. 
For purposes of the final results, the petitioner argues that we should 
estimate the number of hours for selling and administrative personnel 
at Ai Jian and Wuxi and increase the SG&A expenses by multiplying the 
estimated hours for each company by the hourly wage rate.
    The respondents object to the petitioner's argument by first noting 
that in our preliminary results, we included cost categories for 
``service and jobwork expenses,'' ``directors'' remuneration,'' and 
``professional charges'' from Calibre's data as part of SG&A expenses. 
The respondents continue by stating that, contrary to the petitioner's 
claim, categories listed under ``Employment Costs'' relate to direct 
and indirect labor costs associated with the production of merchandise 
and do not include SG&A labor. Moreover, the respondents argue that the 
petitioner's proposed methodology would double-count SG&A labor. 
Accordingly, the respondents urge the Department to reject the 
petitioner's argument.

DOC Position

    We agree with the respondents. Based on our review of Calibre's 
financial statements, while we find that categories listed under 
``Employment Costs'' relate to direct and indirect labor costs 
associated with the production of merchandise, there is no information 
to indicate that these categories also include SG&A labor costs. As the 
respondents note, we included cost categories for ``service and jobwork 
expenses,'' ``directors'' remuneration,'' ``professional charges,'' 
``selling expenses,'' and ``administrative overheads'' in SG&A 
expenses. In order for us to compute SG&A labor hours as a separate 
element of factors of production, as proposed by the petitioner, it 
would be necessary to derive SG&A expenses from Calibre's financial 
data exclusive of all labor components. Given the lack of sufficient 
detailed data, we are not able to break out labor costs from Calibre's 
SG&A expense categories. Accordingly, we did not calculate SG&A labor 
hours as a separate component in our factors of production calculation. 
Rather, we are making a reasonable assumption that SG&A labor is 
included in the surrogate SG&A ratio.

Comment 7: Depreciation Expenses

    The respondents argue that for purposes of the preliminary results, 
the Department improperly included all depreciation expenses as part of 
factory overhead without allocating a portion of the expenses to SG&A. 
According to the respondents, Department practice mandates that 
depreciation costs be allocated according to the function and value of 
the assets, and only depreciation costs that are attributable to assets 
related to manufacturing costs may be allocated to factory overhead. At 
a minimum, the respondents assert that the Department should allocate 
depreciation costs for ``Residential Building'' and ``Furniture and 
Fixtures'' to SG&A and a portion of the costs for ``Computers'' and 
``Vehicles'' to SG&A.
    The petitioner asserts that the record evidence does not include 
any information that would allow the

[[Page 69501]]

Department to allocate depreciation costs as suggested by the 
respondents. Thus, the petitioner states that the Department should 
classify all expenses in question as manufacturing expenses and include 
them in factory overhead.

DOC Position

    We agree with the respondents that depreciation costs should be 
allocated between factory overhead and SG&A based on the value and 
function of the assets, in accordance with Department practice. See 
e.g., Tapered Roller Bearings and Parts Thereof, Finished and 
Unfinished, from the People's Republic of China, 62 FR 6189 (February 
11, 1997). Calibre's financial statements contain a breakdown of the 
total depreciation costs for fiscal year 1998. Based on this 
information, we classified each expense category as either overhead or 
SG&A for purposes of these final results. Where it was unclear whether 
an expense would be more properly categorized as overhead rather than 
SG&A (i.e., ``Computers'' and ``Vehicles''), we allocated the expense 
amount evenly between the two categories. With respect to fiscal year 
1997 depreciation costs, Calibre's financial statements do not provide 
a breakdown of the total amount. Therefore, we allocated the total 
costs between overhead and SG&A based on the percentage of total costs 
allocated to each category for fiscal year 1998. See the Factors 
Memorandum for detailed analysis.

Comment 8: Reclassifying ``Service and Jobwork'' Expenses

    The respondents claim that the Department improperly classified 
``Service and Jobwork'' expenses as SG&A expenses. According to the 
respondents, the reference to ``jobwork'' identifies these expenses as 
related to subcontracting labor expenses that should be considered as 
part of direct manufacturing labor costs, rather than as SG&A expenses.
    The petitioner submits that because Calibre's financial statements 
do not describe the type of expenses that are included in the line item 
``Service and Jobwork'' expenses, it is within the Department's 
discretion to classify these expenses on the basis of the best 
information available. The petitioner suggests that it is much more 
likely that these expenses relate primarily to auxiliary manufacturing 
services rather than to contract labor hired to assist in the 
production of merchandise. Accordingly, the petitioner states that the 
Department should continue to include these expenses in SG&A.

DOC Position

    We disagree with the respondents. As noted by the petitioner, 
Calibre's financial statements do not provide a description of the type 
of expenses that are included in the ``Service and Jobwork'' expenses 
line item. Therefore, there is no basis to conclude that these expenses 
represent labor costs directly associated with the production of 
merchandise. Moreover, as noted by both the petitioner and respondents 
under comment 6 above, it appears that direct and indirect labor costs 
related to production are separately reported under ``Employment 
Costs'' in Calibre's financial statements. Therefore, because the 
``Service and Jobwork'' expenses line item is listed as a separate 
category, and not under ``Employment Costs,'' we conclude that we 
properly treated these expenses as SG&A.

Comment 9: Scrap Income

    The respondents claim that the Department erroneously applied 
Calibre's sale of scrap as an offset to its cost of manufacturing in 
the calculation of SG&A ratio. According to the respondents, the 
Department's practice is to apply an offset for scrap only when the 
respondent claims an offset for scrap. Given that the respondents in 
this review did not receive scrap revenue, the respondents assert that 
it would be inappropriate for the Department to attribute scrap revenue 
from the surrogate Indian producer to the data reported by the 
respondents.
    The petitioner did not comment on this issue.

DOC Position

    We disagree with the respondents and have continued to include 
Calibre's sales of scrap as an offset to its cost of manufacturing for 
purposes of deriving a surrogate SG&A ratio. The Department's practice 
is to treat scrap sales as a reduction in cost of manufacturing. See 
e.g., Notice of Final Determination of Sales at Less Than Fair Value: 
Certain Preserved Mushrooms from the People's Republic of China, 63 FR 
72255 (December 31, 1998). While AJ Works had no scrap sales and did 
not claim an offset for scrap, this is irrelevant to our calculation of 
a surrogate SG&A ratio. Calibre did receive revenue from sale of scrap 
materials, and this revenue is an offset to its cost of manufacturing. 
Therefore, in calculating Calibre's SG&A ratio as a percentage of its 
cost of manufacturing, we need to include all revenues and expenses 
that affect its cost of manufacturing. Accordingly, we have continued 
to offset Calibre's cost of manufacturing with the scrap revenue 
amount. As noted above under Comment 5, in calculating surrogate 
overhead and SG&A ratios, we consider all components of the surrogate 
company's manufacturing and general expenses without tailoring them to 
match the circumstances of the NME producer. See e.g., TRBs from the 
PRC, 63 FR at 63853.

Comment 10: Indirect Labor

    The petitioner contends that the Department, for purposes of the 
preliminary results, failed to include indirect labor hours in the 
calculation of normal value. According to the petitioner, because the 
surrogate Indian company's financial statements do not include salaries 
or wages for indirect workers in the factory overhead expenses, the 
Department needs to include AJ Works' total indirect labor hours as a 
factor of production. The petitioner further asserts that AJ Works 
under-reported the number of indirect labor hours in the factors of 
production data submitted to the Department. Accordingly, the 
petitioner argues that the Department should increase the reported 
number of indirect hours to account for all of the indirect workers 
reported by AJ Works using the methodology proposed in its case brief.
    The respondents rebut that the Department correctly included the 
factory's indirect labor hours in the calculation of normal value. The 
respondents further state that, contrary to the petitioner's claim, the 
Department found no discrepancies at verification concerning its 
reported indirect labor hours.

DOC Position

    We agree with the petitioner that we erred in the preliminary 
results calculations by not including indirect labor hours in the 
factors of production calculation. We further agree with the petitioner 
that based on our review of information on the record, the number of 
indirect labor hours AJ Works reported in its factors of production 
table understates the total number of indirect labor hours involved in 
the production of subject merchandise during the POR. Specifically, AJ 
Works, in its November 19, 1998, Section D response, stated that it 
reported indirect labor hours associated with ``inventory maintenance'' 
in the factors of production table. In its February 4, 1999, 
supplemental Section D response, AJ Works provided a list of all 
divisions in the factory and the corresponding number of employees in 
each division. Our review of this list indicates that AJ Works omitted 
labor hours for certain

[[Page 69502]]

employees indirectly related to the production of subject merchandise, 
such as quality control, technology and energy department personnel. 
Therefore, for purposes of the final results, we increased the number 
of indirect labor hours based on information AJ Works provided in its 
supplemental Section D response and included the revised per-unit 
indirect labor hour in our calculation of normal value. See the 
Calculation Memorandum for a detailed analysis.

Comment 11: Separate Rates

    The petitioner submitted for the record a copy of a Circular issued 
by the Chinese Communist Party on January 14, 1997, entitled ``Notice 
of the Communist Party of China Central Committee on Reinforcing and 
Improving Party Building in the State-Owned Enterprises'' (The 
Circular). Citing excerpts from The Circular, the petitioner claims 
that The Circular expressly imposes Communist Party control over, among 
other things, decisions regarding the selection of management and 
decisions concerning the disposition of proceeds of export sales and 
profits. Accordingly, the petitioner claims, the Department should, on 
the basis of The Circular, presume de facto state control over state 
enterprises and apply a single country-wide rate to the respondents in 
this proceeding.
    The respondents counter that the petitioner fails to demonstrate 
how The Circular demonstrates de facto control of any of the 
respondents in this review. The respondents argue that they have 
substantiated their claim of de facto independence from the central 
Chinese government and demonstrated that they are unaffected by the 
provisions of The Circular. Accordingly, the respondents request the 
Department to reject the petitioner's argument.

DOC Position

    We disagree with the petitioner. We note that the petitioner 
submitted The Circular on the record of the LTFV investigation of 
persulfates from the PRC, covering the period January through June 
1996, and requested that the Department revisit its policy regarding 
separate rates. For purposes of the final determination, the Department 
stated that ``* * * it is not clear that [The Circular] nullifies or 
amends any laws or regulations that grant operational independence to 
exporters, or that it will result in de facto government control over 
export activities of [state-owned exporters] at some time,'' and 
determined that Ai Jian and Wuxi merited separate rates.
    In the instant review, we found that the two exporters subject to 
review operate independently with respect to exports. Specifically, we 
found that (1) export prices are not set by or subject to government 
control; (2) company officials have the authority to negotiate and sign 
contracts; (3) each company has control over disposition of foreign 
currency earned from export sales; and (4) each company has autonomy 
from the government regarding the selection of management (see the 
Sales Verification Report for Ai Jian and Wuxi, dated June 24, 1999). 
Therefore, because the evidence on the record of this review 
demonstrates an absence of government control, both in law and in fact, 
with respect to the respondents' export activities, we have continued 
to assign both Ai Jian and Wuxi separate rates.

Comment 12: Chemical Prices

    The petitioner argues that the Department overstated the excise and 
sales taxes deducted from prices published in Chemical Weekly due to an 
incorrect calculation, which results in an understatement of the 
surrogate values for these inputs.
    The respondents agree with the petitioner.

DOC Position

    We agree. We have made the appropriate corrections for purposes of 
the final results.

Final Results of the Review

    As a result of our analysis of the comments we received, we have 
made changes to our analysis. We determine the following weighted-
average margins existed for the period December 27, 1996, through June 
30, 1998:

------------------------------------------------------------------------
                                                                Margin
                   Manufacturer/Exporter                      (percent)
------------------------------------------------------------------------
Shanghai Ai Jian Import & Export Corporation...............         5.41
Sinochem Jiangsu Wuxi Import & Export Corporation..........         7.18
------------------------------------------------------------------------

Assessment Rates

    The Department shall determine and the Customs Service shall assess 
antidumping duties on all appropriate entries. The Department will 
issue appropriate appraisement instructions directly to the Customs 
Service upon completion of this review. The final results of this 
review shall be the basis for the assessment of antidumping duties on 
entries of merchandise covered by this review and for future deposits 
of estimated duties. For assessment purposes, we do not have the 
information to calculate an estimated entered value. Accordingly, we 
have calculated importer-specific duty assessment rates for the 
merchandise by aggregating the dumping margins calculated for all U.S. 
sales on an importer-specific basis and dividing this amount by the 
total quantity of those sales. This rate will be assessed uniformly on 
all entries of that particular importer made during the POR.
    Furthermore, the following deposit requirements will be effective 
upon publication of this notice of final results of this antidumping 
duty administrative review for all shipments of the subject merchandise 
entered, or withdrawn from warehouse, for consumption on or after the 
publication date, as provided by section 751(a)(1) of the Act: (1) The 
cash deposit rate for each reviewed company will be the rate indicated 
above; (2) the cash deposit rate for Guangdong Petroleum will continue 
to be 34.97 percent, the company-specific rate from the LTFV 
investigation; (3) the cash deposit rate for all other PRC exporters 
will continue to be 119.02 percent, the PRC-wide rate established in 
the LTFV investigation; and (4) the cash deposit rate for non-PRC 
exporters of subject merchandise from the PRC will be the rate 
applicable to the PRC supplier of that exporter. These deposit 
requirements shall remain in effect until publication of the final 
results of the next administrative review.

Notification of Interested Parties

    This notice serves as a final reminder to importers of their 
responsibility under 19 CFR 351.402(f) to file a certificate regarding 
the reimbursement of antidumping duties prior to liquidation of the 
relevant entries during this review period. Failure to comply with this 
requirement could result in the Secretary's presumption that 
reimbursement of antidumping duties occurred and the subsequent 
assessment of double antidumping duties.
    This notice also serves as the only reminder to parties subject to 
administrative protective order (APO) of their responsibility 
concerning the disposition of proprietary information disclosed under 
APO in accordance with section 351.306 of the Department's regulations. 
Timely notification of return/destruction of APO materials or 
conversion to judicial protective order is hereby requested. Failure to 
comply with the regulations and the terms of an APO is a sanctionable 
violation.
    This administrative review is issued and published in accordance 
with

[[Page 69503]]

sections 751(a)(1) and 777(i)(1) of the Act.

    Dated: December 6, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-32225 Filed 12-10-99; 8:45 am]
BILLING CODE 3510-DS-P