66 FR 65899, December 21, 2001 A-583-816 POR: 6/1/99-5/31/00 Public Document IA/III/IX: AV MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary for Import Administration, Group III SUBJECT: Issues and Decision Memorandum for the Administrative Review of Stainless Steel Butt-Weld Pipe Fittings from Taiwan: June 1, 1999 through May 31, 2000 SUMMARY: We have analyzed the case and rebuttal briefs of interested parties in response to Preliminary Results of Antidumping Duty Administrative Review: Certain Stainless Steel Butt-Weld Pipe Fittings from Taiwan ("Preliminary Results"), 66 FR 36555 (July 12, 2001). As a result of our analysis, we have made changes from the Preliminary Results. The specific calculation changes can be found in our Analysis Memorandum from Alex Villanueva, Case Analyst to James C. Doyle, Program Manager, Certain Stainless Steel Butt- Weld Pipe Fittings from Taiwan: Ta Chen Stainless Steel Pipe Co., Ltd. ("Final Analysis Memo"), dated December 10, 2001. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this Issues and Decision Memorandum. Below is the complete list of the issues in this administrative review: General Issues Comment 1: Intra-Warehouse Transfer Expenses Comment 2: Level of Trade ("LOT")/CEP Offset Comment 3: CEP Profit Comment 4: CEP Sales Expenses Comment 5: U.S. Short-Term Interest Rate Comment 6: U.S. Inventory Carrying Period Comment 7: U.S. Indirect Selling Expenses Comment 8: Home Market Indirect Selling Expenses Comment 9: General and Administrative Expenses Comment 10: Reclassification of EP sales to CEP sales DISCUSSION OF THE ISSUES: Comment 1: Intra-Warehouse Transfer Expenses (1) Citing the Memorandum to the File from Alex Villanueva, regarding U.S. Verification in the Administrative Review of the Antidumping Duty Order on Certain Stainless Steel Butt-Weld Pipe Fittings from Taiwan: 6/1/99- 5/31/00 ("TCI's Verification Report") dated June 15, 2001, and the Analysis Memorandum for Certain Stainless Steel Butt-Weld Pipe Fittings from Taiwan: Preliminary Results of the 1999-2000 Administrative Review of Certain Stainless Steel Butt-Weld Pipe Fittings from Taiwan ("Preliminary Analysis Memo"), dated July 12, 2001, Ta Chen claims that TCI openly and fully answered the Department's questions at verification regarding TCI's transfer of materials among its U.S. warehouses, which were not reported in the questionnaire responses. Citing the events at the TCI verification, respondent argues that TCI provided the Department all the documents necessary to calculate these expenses. Ta Chen states that its allocation factor was caculated by dividing the total period of review ("POR") intra- warehouse expenses over TCI's total POR sales value. Moreover, Ta Chen argues that transfers between TCI's warehouses involve all types of products sold by Ta Chen, not just stainless steel butt-weld pipe fittings. Ta Chen notes that any given transfer between TCI's warehouses may involve multiple products and it is not possible to separate out from records the exact product transferred for a more precise calculation of the transfer costs per product. Ta Chen claims that the company documents (e.g., freight invoices) do not clearly indicate the type of product, but may only refer to stainless steel products. Citing the TCI Verification Report and the Preliminary Analysis Memo, Ta Chen further argues that the Department has stated TCI could not more accurately allocate intra-warehouse transfer expenses than as done by its allocation factor and that it is impossible to trace specific movement costs incurred to get the fitting between TCI warehouses. Therefore, Ta Chen concludes that these expenses are properly considered indirect. According to Ta Chen, at verification, the Department noted no errors in its allocation factor and the supporting documents provided. Ta Chen claims that the Department ignored and omitted from the verification report, the verification of the 0.49 percent. Citing Bowe-Passat v. United States, 17 CIT 335, 343 (1993), Ta Chen argues that the Department should have given TCI an opportunity to address any concerns over the information presented. Furthermore, citing Sigma Corp v. United States, 841 F. Supp. 1255, 1262, 1264, 1267-68, 1273 (CIT 19930), Ta Chen claims that the Department's lack of notice of concern and opportunity for the respondent to comment or address them is so fundamentally prejudicial as to be a due process violation. As further support, Ta Chen cites Usinor Sacilor v. United States, 893 F. Supp. 1112, 1141 (CIT 1995); Micron Technology Inc. V. United States, 117 F. 3d. 1386, 1399 (Fed Cir. 1997), Rubberflex v. United States, Slip Op. 99-68 at 21 (CIT July 23, 1999). According to Ta Chen, the Department simply may not resort to adverse facts available when it did not inform the respondent of any deficiencies (e.g., 0.49 percent presentation). See Mitsui & Co., Ltd. v. United States, 18 CIT 185 (1994). Citing AK Steel Corp. v. United States, Slip Op. 98-15 at 48-49 (CIT Nov. 23, 1998), Ta Chen argues that the Department did not indicate a problem with its presented proof at verification and therefore, may not reject that proof. Ta Chen also cites the Department's Antidumping Manual, and argues that the verifiers "may only discover minor discrepancies which should merely be noted in the report" but that "major discrepancies are serious flaws in the database" and if the verifier suspects that major errors exist, he should advise the exporter, and "should document the existence of the discrepancy and collect additional information, as time and resources allow, that will provide alternatives to dealing with the problem." According to Ta Chen, the verifiers failed to document the true magnitude of the error and worse yet, failed to put such documentation in their verification report. Along these lines, Ta Chen argues that the Department's decision regarding adverse inferences as to the intra-warehouse transfer expense is unclear. Ta Chen suggests that perhaps the Department found through adverse inferences that unreported expenses equal 11.29 percent, ad valorem, and that the adverse inferences are warranted because a major cost was not reported. Ta Chen argues that this circular reasoning is not in accordance with law. Citing Ta Chen Stainless Steel Pipe v. United States, Slip Op. 01-101 (August 14, 2001), Ta Chen argues that the Department cannot impose an adverse inference for a major omitted expense unless there is first evidence of a major omitted expense. According to Ta Chen, there is no substantial evidence on the record that this is a major omitted expense. Ta Chen further argues that the Department's alleged warehouse transfer cost figure of 11.29 percent is absurd because Ta Chen would be unable to make money if it incurred such staggering costs by shuffling products between its U.S. warehouses. According to Ta Chen, a line item as large as the 11.29 percent would have appeared on TCI's financial statements as an itemized overhead expense. Ta Chen claims that the Department allocated all of TCI's intra-warehouse transfer expenses applicable to all TCI products to the 3.9 percent of TCI sales which are subject merchandise. Ta Chen claims that the Department's 11.29 percent is over twenty times larger than the 0.49 percent and therefore, creates a dumping margin that did not exist. Given all of this, Ta Chen asserts that the Department did not offer an explanation for not using the allocation factor, contrary to the Department's practice. Citing Static Random Access Semiconductors from Taiwan, 63 FR 8909, 89286, (Comment 120 (1998)), Concrete Reinforcing Bar from Turkey, 62 FR 9737, 9743, (1997) and Bicycles from China, 61 FR 19026, 19044 (1996), Ta Chen argues that the Department must offer an explanation for the departure from its own practice, which itself is contrary to law. Ta Chen notes that the Department "subtracted the non-subject merchandise related expenses {inter-warehouse transfers} in order to ensure that the numerator and denominator of the certain percentage were both calculated on the same basis to the extent possible, given the data collected at verification." See Preliminary Results at 18. Ta Chen claims that the Department failed to fully note the "data collected at verification" in its verification report or Preliminary Analysis Memo. Moreover, the Respondent notes that the Department did not undertake a methodology to "ensure that the numerator and denominator of the certain percentage were both calculated on the same basis," otherwise the analysis would have supported the 0.49 percent. Citing Olympic Industrial v. United States, 1998 WL 246378 at 5 (CIT 1998) and NTN Bearing Corp. v. United States, 74 F. 3d 1204, 1208 (Fed Cir. 1995), Ta Chen argues that the Department's duty is to determine dumping margins "as accurately as possible." According to Ta Chen, TCI explained at verification its belief that the intra-warehouse transfer expense was de minimis and its understanding that de minimis adjustments did not need to be reported. Ta Chen notes that, at verification, "TCI stated that the inland freight cost was very small and was therefore not reported." See TCI Verification Report at 17. Ta Chen contends that the dumping statute, as well as the Department, accepts the de minimis concept and that de minimis adjustments need not be reported. See Section 777A(a)(2) of the Tariff Act of 1930, as amended and 19 CFR 351.413. Citing the Steel Authority of India v. United States ("Steel Authority of India"), Slip Op 2001-60 at 19 & 24 (CIT May 22, 2001), Ta Chen argues that the Department may use adverse inferences only where a respondent did not act to the best of its ability. According to Ta Chen, TCI's misunderstanding, failure to understand or inadvertence does not support a finding that it did not act to the best of its ability. Ta Chen argues that TCI was right as to the law, as the law provides for ignoring de minimis aggregated adjustments which are under 1% of price. Moreover, Ta Chen suggests that either way, whether TCI misunderstood the law on de minimis adjustments or TCI was right as to such law, a finding that Ta Chen did not act to the best of its ability does not warrant an adverse inference, per Steel Authority of India. The Respondent also cites Mannesmannrohren-Werke AG v. United States, 77 F. Supp. 2d. 1302, 1316 (CIT 1999), as support for its position that Ta Chen readily volunteered the requested data, belying a finding of lack of intended cooperation. According to Ta Chen, the undisputed record evidence is that Ta Chen could not have allocated their intra-warehouse freight costs in any way other than it did. Ta Chen contends that the Department's adverse inference, if based upon the fact that Ta Chen could have allocated the cost better, is unsupported by record evidence and is not in accord with law. Citing Olympic Adhesives, Inc. v. United States, 899 F. 2d. 1565, 1573-74 (Fed. Cir. 1990), Ta Chen argues that the Department should not penalize a party for not providing a document or information which does not exist. According to Ta Chen, there was no other allocation method than that which is used. Ta Chen also cites Allied-Signal Aerospace Co. v. United States, 996 F2d. 1185, 1191 & 93 (Fed. Cir. 1993) and Antidumping Duties: Final Rule, 62 FR 27296, 27341 (1997) (19 CFR 351.308) in support of its position that an imposition of adverse inferences against a respondent for not supplying data that the respondent cannot provide is unlawful. Furthermore, Ta Chen contends that the Department applied an adverse inference because Ta Chen allegedly failed to consult the Department on this issue in advance. See Preliminary Results at 17. According to Ta Chen if a respondent has a misunderstanding, that belies a claim that the respondent failed to act to the best of its ability. Ta Chen suggests that a party with a misunderstanding would not have even known to contact the Department. In support of this position, Ta Chen cites the Steel Authority of India. Ta Chen argues that any particular use of adverse facts available must still consider the basic goal of the anti-dumping law, which is to accurately calculate a dumping margin, even when using an adverse inference to motivate cooperation. Ta Chen cites D&L Supply Co. v. United States, 113 F. 3d. 1220, 1223, (Fed. Cir. 1997)("D&L Supply") and World Finer Foods, Inc. v. United States, 2000 Ct. Int'l Trade LEXIS 72, in support for its argument. According to Ta Chen, the use of 11.29 percent created a dumping margin when there was no dumping margin. This contravenes the fundamental goal of the anti-dumping statute to accurately calculate the dumping margin, per D&L Supply. Ta Chen argues that the court warns that the Department "must be ever vigilant of abuse of discretion." See Wheatland Tube Corp. v. United States, 17 CIT 1230, 1236, 841 F. Supp. 1222, 1227 (1993). Ta Chen also cites Technoimpoterexport. v. United States, 15 CIT 250, 259, 766 F. Supp. 1169, 1178 (1991) noting that a court may remand an act that is an abuse of discretion and "undermined the interests of justice." According to Ta Chen, the Department's improper actions constitute such an abuse of discretion, which does not promote cooperation, as it casts doubt as to whether the objective is to accurately calculate a dumping margin. In their brief, petitioners assert that Ta Chen failed to report U.S. intra-warehouse transfer expenses in its initial and supplemental questionnaire responses. Petitioners note that TCI personnel stated that such inventory transfers were "very common," but that the associated "inland freight cost was very small and was therefore not reported." See TCI Verification Report at 6. Petitioners further note that TCI claimed that "the unreported inland freight costs could not be separated for subject and non-subject merchandise." See TCI Verification Report at 6. Petitioners comment that contrary to TCI's statements, the Department found at verification that TCI's intra-warehouse transfer expenses were not small. Citing the TCI Verification Report, petitioners claim that TCI could segregate intra-warehouse transfer expense for subject merchandise and non-subject merchandise and that these expenses accounted for approximately 11.29 percent of TCI's CEP sales value. Petitioners claim that the adverse facts available methodology preliminarily chosen by the Department is incorrect, because it failed to recognize that the intra-warehouse transfer expenses are movement expenses. Specifically, petitioners argue that the intra-warehouse transfer expenses are expenses incurred to transfer inventory from one warehouse to another. Citing Section 772(c)(2)(A) of the Act, petitioners argue that the starting price for EP and CEP sales shall be reduced by the same amount included in the price of any additional costs, charges, and expenses and normal U.S. import duties incident to bringing the merchandise from the place of shipment in the country of exportation to the place of delivery in the United States. Thus, according to petitioners, intra-warehouse expenses are part of the movement of the merchandise from the place of shipment (in the country of exportation) to the place of delivery in the United States. Petitioners claim that intra- warehouse transfers that are related to POR sales would properly be considered sales-specific movement expenses. Petitioners note that intra- warehouse transfers for the replenishment of a warehouse's inventory would not be considered a sales-specific movement expense until the sale occurred. Petitioners argue that the Department should consider the full amount of the intra-warehouse transfer expenses related to movement expenses because: 1) Ta Chen personnel knew these transfer expenses were very common; 2) the Department requested these expenses from Ta Chen to no avail; 3) Ta Chen could have easily identified and reported these expenses; 4) the transfer expenses could have been easily separated from non-subject merchandise, and 5) the transfer expenses are significant U.S. selling expenses. Citing Steel Authority of India v. United States, Slip Op. 01-60 (May 22, 2001), petitioners note that by considering the transfer expenses as indirect selling expenses, the Department is allowing Ta Chen to dilute the effect of these expenses on the dumping calculation. According to the petitioners, the Department should continue to use the methodology applied in the Preliminary Results, but it should treat these expenses as movement costs and make a separate additional deduction for regular U.S. indirect selling expenses. In its rebuttal brief, Ta Chen argues that TCI's warehouse freight costs were under five percent as a percent of sales value. Ta Chen states that petitioners admit that Ta Chen indicated that such costs were "very small" and could not be separated between subject and non-subject merchandise, warranting the allocation over all TCI sales, as in fact they apply to all TCI sales. Contrary to petitioners' claim, Ta Chen argues that the Department did not find that TCI's intra-warehouse transfer expenses could be segregated into the portion related to subject and non-subject merchandise. Ta Chen claims that the Department said that since almost all of the intra- warehouse freight charges could not be allocated to specific merchandise, the Department would allocate it all to TCI sales of subject merchandise. According to Ta Chen, petitioners argue that the intra-warehouse transfer expenses were not small, but rather 11.29% of sales value. Ta Chen states that petitioners did not cite supporting evidence, but incorrectly state that the $667,142 in freight costs are for fittings only. According to Ta Chen such freight costs are for all TCI sales, of which under 4% relate to sales of subject merchandise. Ta Chen agrees with petitioners' statements that the Department has a legal mandate to calculate the most accurate dumping margin possible. Ta Chen claims that this can only be done by properly allocating TCI's intra- warehouse freight costs over all TCI sales. Ta Chen also argues that the intra-warehouse freight costs were not "common," as petitioners claim. In their rebuttal brief, petitioners argue that Ta Chen's argument fails to recognize the fact that Ta Chen intentionally and totally failed to report any intra-warehouse transfer expenses in its questionnaire responses, and that these expenses were ultimately discovered by the Department at verification. According to petitioners this single fact alone discredits the argument made by Ta Chen that the Department should make a small, non-punitive adjustment. Petitioners assert that the record on this issue stands clear: 1) Ta Chen was aware of the existence of these expenses, and Ta Chen personnel knew that such transfers were very common; 2) the Department requested these expenses from Ta Chen to no avail; 3) Ta Chen could have easily identified and reported these expenses to the Department in a timely and accurate manner, as it did in the Department's two-day verification of TCI; 4) contrary to Ta Chen's statements at verification, the expenses easily could have been separated into transfer expenses for subject and non-subject merchandise; and 5) these expenses are significant U.S. selling expenses. Citing Steel Authority of India, Ltd. v. United States, Slip-Op. 01-60, at 12 (CIT May 22, 2001), petitioners argue that the Department should not reward Ta Chen's behavior by making a small adjustment to the U.S. price, as suggested by Ta Chen. Petitioners argue that because these expenses remained unreported until they were discovered by the Department, Ta Chen lost its right to any further due process on this issue. According to petitioners, Ta Chen's suggested methodology is wrong because it fails to consider the fact that the unreported intra-warehouse expenses can be segregated into expenses for subject and non-subject merchandise. Petitioners argue that a large percentage of the total unreported transfer expenses were attributable to subject merchandise. Petitioners claim that following Ta Chen's methodology of allocating total unreported intra-warehouse transfer expenses over total sales erroneously dilutes the significance of these expenses to the subject merchandise. Therefore, petitioners requested that the Department rely on its preliminary calculation methodology for the unreported intra-warehouse expenses, deduct the resultant expenses as movements expense costs (USMOVEU), and make a separate additional deductions for regular U.S. ISEs. Department's Position: We disagree with Ta Chen and agree with petitioners in part. With respect to Ta Chen's argument that the Department did not indicate a problem with its documents presented at verification regarding its calculation of intra-warehouse transfer expenses, and therefore, may not reject that proof, we disagree. Ta Chen previously submitted its applicable expenses for United States sales with its original questionnaire response, but omitted intra-warehouse transfer expenses. See Ta Chen's Section B, C and D Questionnaire Response ("Section BCD Response"), dated December 26, 2000 at Exhibit 26. On March 5, 2001, Ta Chen submitted its response to the Department's supplemental questionnaire, and again omitted the intra-warehouse transfer expenses. See Ta Chen's Section B, C and D Supplemental Questionnaire Response ("March BCD Response"), dated March 5, 2001 at Attachment 34. Therefore, prior to the U.S. sales verification, the Department was not aware of TCI's intra-warehouse transfer expenses. On May 31, 2001 through June 1, 2001, the Department conducted Ta Chen's U.S. sales verification. See TCI Verification Report at 1. Prior to beginning the U.S. sales verification, the Department asked TCI officials if they had minor corrections to information on the record. The Department noted that "respondent {TCI} did not submit any corrections to the Department prior to the beginning of verification." See Id. We noted that Ta Chen did not present its intra-warehouse transfer expense information to the Department; only after the Department inquired as to whether any such expenses existed did TCI present the information. Id at 6. The Department further noted that "TCI stated that the inland freight cost was very small and was therefore not reported." See Id. Specifically, TCI presented the information after the Department asked TCI "if subject merchandise (fittings) {were} transferred among the warehouses during the POR." See TCI's Verification Report at 6. With respect to Ta Chen's argument that its intra-warehouse transfer expenses were small and therefore de minimis, we disagree. During verification, the Department discovered that, in fact, the intra-warehouse transfer expenses were not small, as argued by Ta Chen. The U.S.$750,807.47 figure is significant because a majority of the line items used to calculate the U.S. indirect selling expenses, which TCI claimed these expenses to be, are smaller than this figure. See TCI's Verification Report at Exhibit TCI-7. Therefore, contrary to Ta Chen's claim that the intra-warehouse expense was not a major omitted expense, the evidence on the record clearly indicates that Ta Chen failed to report a major expense. With respect to Ta Chen's argument that this was a de minimis adjustment and should not be reported, we disagree. Ta Chen appears to suggest that it may decide which adjustments are de minimis and, furthermore, ascertain whether they should be reported to the Department. Section 777A(a)(2) of the Act clearly stipulates that the administering authority may "decline to take into account adjustments which are insignificant in relation to the price or value of the merchandise." The Act contemplates the Department as being granted the authority to decline to take into account such adjustments, not the respondents. Therefore, Ta Chen's implicit argument that it may decline to take into account such adjustments and therefore not report them is incorrect. Furthermore, in this instance, Ta Chen's presumption that the Department would decline to take such an adjustment into account is especially curious given that the intra- warehouse expenses in question, when ranked against the other expenses used to calculate the indirect selling expense, which TCI claimed these expenses to be, are significantly larger than the majority of other indirect selling expenses. Consequently, Ta Chen's claim that a relatively large expense item is de minimis, while reporting several smaller expense items, further undermines its protestations on this point. With respect to Ta Chen's argument that the intra-warehouse transfer expenses among TCI's warehouses could not be separated because they involve multiple products, including non-subject merchandise, we agree in part. At verification, TCI presented the Department with a General Ledger Detailed Report ("GLDR"), which summarized TCI's inland freight transfer expenses by month and, where possible, by product. See TCI's Verification Report at Exhibit TCI-12. The Department noted in the Preliminary Results that "where we were able to distinguish subject from non-subject expenses we removed the clearly non-subject indirect selling expenses." See Preliminary Analysis Memo at 4. Therefore, rather than use the total US$750,807.47 transfer freight expense for the POR, which included subject and non-subject freight transfer expenses, we used the "US$667,142, which only accounts for indirect selling expenses where we could not separate non-subject merchandise," ensuring that the Department did not include expenses which were not for subject merchandise. Id. Ta Chen also argues that the Department already stated in its Preliminary Analysis Memo that it is impossible to trace specific movement costs incurred by a fitting to get the fitting to a TCI warehouse, which would include intra-warehouse transfer expenses. Ta Chen has misinterpreted the Department's Preliminary Results regarding movement expenses. In the Preliminary Analysis Memo, the Department addressed other movement expenses relating to CEP sales (i.e., ocean freight, broker and handling, marine insurance etc.). These expenses are associated with transporting the subject merchandise from Taiwan to the United States, not U.S. inland intra-warehouse transfer expenses: As a result of verification, we have preliminary determined that the methodology used by Ta Chen to report sales expenses for CEP sales is not distorted since reporting movement expenses for all sales is not possible. See Preliminary Analysis Memo at 4. The intra-warehouse expenses at issue here are expenses TCI incurs when transferring its merchandise among its U.S. warehouses in the United States. For a further discussion of these CEP sales expense, please see Comment 4 below. With respect to Ta Chen's argument that the Department cannot use adverse facts available because Ta Chen's calculation is accurate, we disagree. Section 776(a)(2) of the Act provides that if an interested party: (A) withholds information that has been requested by the Department; (B) fails to provide such information in a timely manner or in the form or manner requested, subject to subsections 782(c)(1) and (e) of the Act; (C) significantly impedes a determination under the antidumping statute; or (D) provides such information but the information cannot be verified, the Department shall, subject to subsection 782(d) of the Act, use facts otherwise available in reaching the applicable determination. In our Preliminary Results, we noted that in this case, section 776(a)(2)(A) of the Act applies because, at the U.S. sales verification of TCI, "we discovered that TCI failed to report expenses incurred to move inventory among its warehouses, which should properly have been reported in its calculation of U.S. indirect selling expenses." See Preliminary Results at 17. Where a party has not cooperated to the best of its ability, Commerce may employ adverse inferences regarding the missing information, to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully. See Section 776(b) of the Act and The Statement of Administrative Action accompanying the URAA, H.R. Doc. No. 103-316, 870 (1994) ("SAA"). In employing adverse inferences, one factor Commerce will consider is the extent to which a party may benefit from its own lack of cooperation. Information used to make an adverse inference may include such sources as the petition, other information placed on the record, or determinations in a prior proceeding regarding the subject merchandise. Therefore, consistent with the Department's practice in cases where a respondent fails to cooperate to the best of its ability, we have determined that the use of partial adverse facts available is warranted. Because Ta Chen knowingly failed to report the intra-warehouse transfer expenses to the Department, Ta Chen is subject to facts available. Ta Chen's knowledge of the intra-warehouse transfer expenses and its decision not to report them to the Department properly warrants the use of adverse facts available. Ta Chen did not cooperate to the best of its ability with regard to its responses for requests for information during the course of the administrative review. It was only at the Department's request at verification that TCI offered its explanation for not reporting these expenses earlier. At verification, TCI stated that the inland freight cost was very small and was therefore not reported. See TCI Verification Report at 6. Therefore, consistent with Department practice in cases where a respondent fails to cooperate to the best of its ability, and in keeping with section 776(b) of the Act, we affirm our preliminary determination that the use of partial adverse facts available was warranted. Ta Chen argues that the Department's adverse inference, if based upon the fact that Ta Chen could have allocated the costs better, is unsupported by record evidence and is not in accord with law. Furthermore, Ta Chen argues that it should not be penalized for not providing a document or information that did not exist. Ta Chen disagrees with the Department's statements in TCI's Verification Report that it did not report these expenses. We disagree with Ta Chen. Ta Chen acknowledged that TCI chose not to report these expenses even after calculating its allocation factor. See Preliminary Results at 7. More importantly, Ta Chen's claim that it cannot be penalized for not providing a document that did not exist is unsupported by the fact that it had the relevant documents or information, such as the GDLR, when calculating its U.S. indirect selling expenses at verification. During verification, TCI did not claim that the intra- warehouse transfer expenses were not reported because it did not have the information to calculate them, but stated that the expenses were de minimis and therefore not reported. Ta Chen argues that at verification it attempted to provide the Department with a calculation showing that the intra-warehouse transfer expenses were small, specifically equaling 0.49 percent of its total sales value during the POR. Contrary to Ta Chen's claim that it was harmed by the Department failure to record relevant information in the verification report and among the verification exhibits, such is not the case. The Department took exhibits indicating both the total amount of unreported intra-warehouse transfer expenses and whether such expenses could be segregated into subject and non-subject merchandise components. The Department did not need to take Ta Chen's allocation factor because that calculation was not material to the total amount of the unreported expense or whether the expense could be segregated; it merely represents an argument regarding the proper treatment of the deliberately unreported expenses, and therefore is suitable for submission in Ta Chen's case and rebuttal briefs, rather than for inclusion in the verification report. In any event, the Department notes that Ta Chen did in fact properly include this argument and calculation in its briefs, so implications that Ta Chen was prejudiced by this alleged failure are unavailing. With respect to petitioners' argument that the adverse facts available methodology preliminarily chosen by the Department is incorrect because it failed to recognize that the intra-warehouse transfer expenses are movement expenses and should be considered sales-specific movement expenses, we agree in part. We first note that our Preliminary Results confused the identification of the nature of these expenses with the proper method for calculating them. Petitioners are correct that these expenses are unquestionably movement expenses, as they arise solely when Ta Chen moves inventory from one warehouse to another. As such, the Department must treat these expenses as movement expenses. In applying facts available for these movement expenses in our calculation, the Department used a method applied a previous case. In Notice of Final Results of Antidumping Duty Administrative Review: Certain Welded Carbon Steel Pipe and Tube from Turkey, ("Pipe and Tube from Turkey") 61 FR 69067 (December 31, 1996), as adverse facts available, the Department applied the highest unreported freight rate to those sales with no freight: In this case, Borusan did not act to the best of its ability in responding to our request for such information, pursuant to section 782(e)(4) of the Act, we have therefore drawn an adverse inference under the authority provided by section 776 of the Act. As fact available, we are assigning the highest freight rate per kilogram to those sales with no freight... See Pipe and Tube from Turkey 61 FR at 69067. The circumstances in Pipe and Tube from Turkey are similar to the instant case such that in choosing among the facts available, the Department used the highest freight incurred by Borusan and applied it to those sales with improperly unreported freight. Following the Pipe and Tube from Turkey principle, we identified the highest monthly intra-warehouse transfer expense. We then applied that month's amount to the remaining months in the POR. We then summed each month into a POR total and, in recognition of Ta Chen's accurate assessment that its records do not permit sales- specific identification of these expenses, we divided the summed total amount by TCI's POR net sales figure for all merchandise, both subject and non-subject. We then multiplied this figure by the gross unit price to arrive at the amount we deducted from CEP. See Final Analysis Memo at 4. Comment 2: LOT/CEP Offset Ta Chen alleges that the Department's dumping margin calculation improperly failed to find that Ta Chen sold at different LOTs in the United States and Taiwan. Citing Koyo Seiko Co. v. United States, 36 F. 3d. 1565, 1573 (Fed. Cir. 1994) and U.S. Steel Group v. United States, 2000 U.S. App. LEXIS 12528 at 14 (Fed. Cir. August 25, 200), Ta Chen argues that the Department should have made a fair, apples-to-apples comparison when reaching its Preliminary Results, as sales were compared across trade levels with no adjustment for the different levels of trade. Ta Chen further argues that the Department's failure to find its sales were made at different LOTs, and subsequently grant a CEP offset adjustment, meant that U.S. prices were reduced for inventory carrying costs and indirect selling costs, but home market prices were not. Ta Chen asserts that it sells to distributors and end-users in Taiwan, and in the United States, Ta Chen only sells to its affiliate, TCI, a master distributor who in turn sells to other distributors. Ta Chen claims that the Preliminary Analysis Memo incorrectly stated that there was no difference in selling functions as to U.S. and home market sales. As evidence thereof, Ta Chen cites its Section A Questionnaire Response ("Section A Response"), dated November 27, 2000, which notes that Ta Chen maintains inventory, incurs seller's risk of non-payment, undertakes technical service, packing, after-sales service, freight and delivery arrangements and selling efforts for its home market sales. Ta Chen argues that none of these selling functions are performed by Ta Chen for the U.S. market as Ta Chen ships its products to TCI, which takes over these selling functions. Additionally, Ta Chen states that the record evidence indicates that Ta Chen has well over one thousand home market sales, but under 20 invoices to its U.S. subsidiary, TCI, with each Ta Chen-to-TCI invoice involving, on average, quantities about 500 times greater than the average home market sale. Citing its March 5, 2001, submission as evidence of the disparate number of sales and the average Ta Chen to TCI quantities, Ta Chen argues that there is an enormous difference in level of effort for Ta Chen as to U.S. and home market sales, implying different levels of trade exist. Further, Ta Chen argues that it does not incur inventory costs for its sales to TCI because the fittings are produced and shipped immediately. Specifically, Ta Chen argues that it holds products in inventory in Taiwan for 163 days on average, which is about 4% of the total sales value from submitted home market data files submitted on December 26, 2000. Ta Chen argues further that the inventory carrying costs incurred by TCI are enormous given the extremely long inventory time for fittings, which is 349 days (equal to 8.7% of cost of goods sold). Ta Chen asserts that TCI negotiates U.S. sales with unaffiliated customers and bears the risk of nonpayment, relieving Ta Chen of these selling functions with respect to its U.S. sales. Ta Chen argues that in other cases, the Department has found a difference in the level of trade warranting an adjustment in similar circumstances to Ta Chen's. Specifically, Ta Chen compares it situation with that in Stainless Steel Sheet and Strip in Coils from Mexico, 64 FR 30790, 30810 (1999) ("SSSS from Mexico"), where the home market LOT was found to be more advanced than the CEP LOT, under circumstances similar to those in this case. Ta Chen states that in both cases, selling activities were not performed or were performed at low level between the foreign parent and its U.S. subsidiary (i.e., technical services, inventory maintenance, and prompt delivery). Moreover, Ta Chen asserts that in both cases, because of the smaller lots sold in the home market, the home market order processing, price negotiation and payment collection activities were assumed to be more costly on a per unit basis than the CEP sales between the foreign parent and its U.S. subsidiary and thus again the home market sales were at a more advanced stage of marketing. Ta Chen also argues that freight delivery service activities were held to be more common in the CEP transactions between the foreign parent and the U.S. subsidiary than between the foreign parent and its customers located throughout the home market, reflecting a less advanced stage of marketing as to the U.S. sales. Citing Gray Portland Cement from Mexico ("Cement from Mexico"), 64 FR 13148, 13161-62 (1999) and Professional Cutting Tools from Japan, 63 FR 30706, 30708 (1998), Ta Chen argues that, while the foreign parent makes phone calls to the U.S. subsidiary, such calls were assumed to be more common between the foreign parent and its eight unaffiliated home market customers. Citing Cement from Mexico, SSSS from Mexico and Notice of Final Results of Antidumping Duty Administrative Review: Antifriction Bearings from France, 62 FR 54043, 54058 (1997) ("Antifriction Bearings from France"), Ta Chen claims that the CEP offset provision applies where, as here, normal value is established at a LOT which constitutes a more advanced stage of distribution than the level of trade of the CEP and the data available does not provide an appropriate basis to determine a LOT adjustment because Ta Chen does not sell in the home market to the same level of trade it sells to the United States. In their rebuttal brief, petitioners argue that the record not only supports the Department's preliminary finding, but actually shows that Ta Chen provided fewer selling functions that are at a less advanced level for its home market sales in comparison to its U.S. sales. The petitioners begin by noting that Ta Chen provided the Department with its selling functions in both markets. For the home market, Ta Chen provides inventory maintenance to date of shipment, incurs risk of non-payment, extension of credit terms, and addresses customer's complaints. The list of selling functions Ta Chen provides for TCI includes: inventory maintenance to date of shipment, incurs risk of non-payment, extension of credit terms, addresses customer's complaints, handles freight and delivery from Ta Chen to Taiwan port, insures shipment of merchandise, insures shipment of merchandise overseas, manages brokerage and handling, containerization of merchandise, and packages merchandise. Petitioners noted that, contrary to Ta Chen's claims, it did not provide technical service in the home market. Petitioners also note that the number of sales processed in either market do not have a bearing on the selling functions performed in those markets. Petitioners argue that the information submitted by Ta Chen clearly shows that it provided more selling functions on its U.S. sales than its home market sales, and is thus not eligible for a CEP offset. Department's Position: We disagree with Ta Chen and agree with petitioners. Section 773(a)(7)(B) of the Act states: When normal value is established at a level of trade which constitutes a more advanced stage of distribution than the level of trade of the constructed export price, but the data available do not provide an appropriate basis to determined under paragraph (A)(ii) a level of trade adjustment, normal value shall be reduced by the amount of indirect selling expenses incurred in the country in which normal value is determined on sales of the foreign like product but not more than the amount of such expenses for which a deduction is made under Section 772(d)(1)(D). The CEP LOT is the level of the constructed sale from the exporter to the importer. See 19 C.F.R. 351.412(c)(1)(ii). 19 C.F.R. § 351.412(f)(1) states that: the Secretary will grant a CEP offset only where normal value is compared to CEP, determined at a more advanced level of trade than the level of trade of the CEP price, and despite that fact that a party has cooperated to the best of its ability, the data available do not provide an appropriate basis to determine under paragraph (d) of this section whetherthe difference in level of trade affects price comparability. The basis of Ta Chen's contention that it is eligible for CEP offset is contained in its Section A Questionnaire Response ("Section A Response"), dated November 27, 2000, where it stated that it maintains inventory, incurs seller's risk of non-payment, undertakes technical service, packing, after-sales service, freight and delivery arrangements and selling efforts for home market sales. Ta Chen argues that none of these selling functions are performed by Ta Chen for U.S. market sales as Ta Chen ships its products to TCI, which takes over these selling functions. However, these claims do not withstand close scrutiny. Although Ta Chen stated that it undertakes technical services in its Section A response, later, in its home market sales listing, Ta Chen reported that technical services "w{ere} not applicable and thus omitted." See Section BCD Questionnaire Response ("Section BCD Response"), dated December 26, 2000 at 15. In other words, Ta Chen did not report a unit cost for technical services for home market sales, flatly contradicting its earlier submitted section A response, and therefore casting doubt on this claim. Ta Chen stated that it maintains inventory for the home market, but not for the U.S. sales because all sales go through TCI, which takes over this function. We agree that TCI maintains its inventory in the United States for its U.S. sales, but Ta Chen maintains inventory until the date of shipment for both markets. See Section A Supplemental Questionnaire Response ("Sec. A. Supp. Response"), dated February 6, 2001 at 6-8. It is the sale to TCI which is the appropriate focus for the LOT analysis, and since Ta Chen holds inventory in Taiwan prior to shipment to TCI, as well as for Taiwan customers, there is no difference in the provision of this function. Ta Chen argues that it incurs packing and freight expenses for merchandise sold in the home market, but not for sales to the United States through TCI. The evidence on the record indicates that Ta Chen only incurs packing labor expenses for its sales in the home market. "Ta Chen's packing expenses simply involves the labor cost of placing the fittings on the customer's truck. No packing material costs are incurred." See BCD Response at 18-19. For U.S. sales through TCI, Ta Chen incurs the packing material (e.g., wooden boxes, steel strip, plastic belts, pallets, and nails) expenses. See Id. at 26. In the home market section of its BCD Response, Ta Chen stated that inland freight "was not applicable {because} customer picks up." See Id. at 12. For its U.S. sales, Ta Chen uses an outside (unaffiliated) trucking company to transport fittings from its factory in Tainan, Taiwan to the Taiwan port for its U.S. sales. For EP (2) sales Ta Chen also paid for the freight expense from the plant to the port. See BCD Response at 35. Therefore, the record evidence indicates that Ta Chen did not incur freight expenses, but only labor packing expenses, in the home market. A careful analysis of Ta Chen's claim regarding its packing and freight expenses reveals that Ta Chen did not perform more selling functions for sales in the home market than sales to the United States. In fact, Ta Chen's packing and freight selling functions performed for U.S. sales appear to require more of its resources and efforts than is the case for home market sales. We agree that Ta Chen incurs seller's risk and handles after-sales service in the home market, but not for sales to the United States, as TCI incurs this risk. However, this does not outweigh the functions performed by Ta Chen for TCI sales, so as to warrant a CEP offset. Although Ta Chen stated on the record that TCI must pay Ta Chen for its sale even if TCI's customer does not pay, arguably, Ta Chen incurs a smaller risk of non- payment from TCI. Ta Chen performs extension of credit terms, insures shipment of merchandise in Taiwan, insures shipment of merchandise overseas, manages brokerage and handling, containerization of merchandise, and packing for sales to TCI that it does not perform for home market sales. See Ta Chen's February 6, 2001 supplemental questionnaire response at 6. Ta Chen cites SSSS from Mexico, 64 FR 30790, 30810 (June 8, 1999) and Antifriction Bearings from France, 62 FR 54043, 54058 (October 17, 1997) as support for its argument that the Department has granted a CEP offset when it finds there is a more advanced stage of distribution. In SSSS from Mexico, 66 FR at 30810, the Department granted a CEP offset only after a careful review of the selling functions performed in each LOT: taken collectively, the selling activities that Mexinox reported and the way it performs these activities in the two markets support a finding that there is one LOT in the home market and two LOTs in the U.S. market. Unlike Ta Chen, Mexinox submitted information on the record that clearly identified the differences between the LOTs to warrant a CEP offset. Specifically, the Department concluded that Mexinox had a total of seven activities performed in the home market that were not performed in the United States. Ta Chen has not provided the Department with evidence to support a conclusion similar to that in SSSS from Mexico. In Antifriction Bearings from France, the Department reached an identical conclusion because the respondent provided "adequate factual information to concluded that fewer selling functions were associated with the CEP than are performed at its home market LOT." See Antifriction Bearings from France, 62 FR at 54060. For this final determination we are affirming our preliminary determination that all sales in the home market and the U.S. market were made at the same LOT. Therefore, we have not made a LOT adjustment because all price comparisons are at the same LOT and an adjustment pursuant to section 773(a)(7)(A) of the Act is not appropriate. Comment 3: CEP Profit Ta Chen argues that the calculated CEP profit in the Preliminary Results grossly overstated the U.S. profit by omitting U.S. costs such as inventory carrying costs and imputed credit costs. Citing Thai Pineapple Canning v. United States, Slip Op. 99-42 at 8 (CIT May 5, 1999), Ta Chen claims that if such expenses represent some real, previously unaccounted for expenses, they should be considered as to the calculation of CEP profit. Ta Chen argues that the record indicates that TCI incurs enormous inventory carrying and imputed credit costs (over 10% ad valorem combined), therefore, the calculated profit is grossly overstated. Citing Hot-Rolled Flat Rolled Carbon Quality Steel Products from Brazil, 64 FR 38756, 38770-71 (1999) and Cement from Mexico 62 FR 12764, 12793 (March 16,1998), which state that the Department recognizes that inventory and credit costs are real costs that must be considered. Ta Chen states that the SAA, H.R. Doc. No. 103-316 at 824-825 (1994), emphasizes the need to avoid "distortion in the profit allocable to U.S. sales." Ta Chen then argues that the courts have noted that "any other interpretation {of the CEP profit provision} would unduly skew the U.S profit computation against importers because the computation would exclude their highest expense category, leaving them with a disproportionately high dumping margin." See U.S. Steel Group v. United States, 2000 U.S. App. LEXIS 21528 at 20 (Fed. Cir. August 25, 2000) and NTN v. United States, Slip Op. 01-76 at 17 CIT June 22, 2001. Ta Chen argues that only by considering the specific inventory carrying costs and imputed credit costs incurred by subject merchandise can the profit thereon be accurately calculated. Citing section 772(a)(f)(D) of the Act, Ta Chen states that the law is clear that "the term 'total actual profit' {for CEP profit} means the total profit earned by the foreign producer, exporter and affiliated parties......with respect to the sale of the same merchandise for which total expenses are determined under this subparagraph" (i.e., subject merchandise). Furthermore, citing Import Administration Policy Bulletin, No. 97.1., "Calculation of Profit for Constructed Export Price Transactions," dated September 4, 1997, Ta Chen argues that the Department has stated that profit is "total actual profit earned by the respondent with respect to sales of the subject merchandise and the foreign like product." Citing 19 CFR §351.402(d)(1), Ta Chen states that "in calculating total expenses and total actual profit, the Secretary normally will use the aggregate of expenses and profit for all subject merchandise sold in the United States and all foreign like products sold in the exporting country." Moreover, Ta Chen cites the Uruguay Round Agreements Act, 103d. Rpt. 826, 103d. Cong., 2d Sess., House Report 103-826, Part 1, Oct 3, 1994, House Report on section 772, which states that the "profit deduction is intended to parallel WTO language." In particular, Ta Chen argues that the committee intends that profit on subject merchandise be used and there be no distinctions from using broader product line data. Ta Chen argues that the sales of subject merchandise are less than 4% of TCI's total sales such that just allocating total TCI interest costs over total TCI sales will not yield an accurate estimate of the inventory carrying costs and credit expenses generated by the subject merchandise. Ta Chen claims that the record demonstrates that the TCI inventory carrying costs and imputed credit costs for subject merchandise exceed overall allocated interest costs by four fold. Ta Chen states that the Department's practice is to treat costs in the profit and the allocation factor thereof consistently (i.e., calculate them in the same way). Citing Certain Welded Non-Alloy Steel Pipe from Korea, 63 FR 39071, 39072 (1998), Ta Chen states that when applying a profit rate to a cost of production figure, exclusive of certain selling expenses, and when calculating constructed value profit, the profit is calculated on a basis exclusive of the same selling expenses. Therefore, according to Ta Chen, the costs in the CEP profit allocation factor should include inventory carrying costs and imputed credit costs. On a related matter, Ta Chen argues that in the Preliminary Results, the Department reduced the starting price used to establish Ta Chen's CEP by profit allocated to expenses incurred by (or for account of) TCI in selling the subject merchandise in the U.S. market pursuant to 19 U.S.C. § 1677a(f)(2)(B), but failed to include these same amounts in the calculation of "total expenses" as defined by 19 U.S.C. §1677a(f)(2)(C). According to Ta Chen, the Department's methodology ignored the plain language of the antidumping statute and must be corrected to include such expenses in "total United States expenses," in the calculation of "total expenses." See U.S. Steel Group v. United States, 2000 U.S. App. LEXIS 21528 at 10,11 & 20 (Fed. Cir. August 25, 2000); SNR v. United States, 118 F. Supp. 1333, 1341, 2000 Ct. Intl. Trade LEXIS 134; Slip Op. 2000-131 at 23 (2000); FAG Italia, S.p.A. v. United States, 131 F. Supp. 2d. 104, 112, 2001 Ct. Intl. Trade LEXIS 13, 17 (CIT 2001), and NTN Bearing Corporation of America v. United States, 2001 Ct. Intl. Trade LEXIS 79, 80 (2001). In their rebuttal brief, petitioners argue that the Department consistently applied its CEP profit calculation and did so pursuant to its regulations, policy and precedent. Citing the preamble to the regulations, petitioners argue the Department addressed an argument that it "should deduct all expenses, including imputed expenses, in calculating the CEP profit deduction." See Antidumping Duties; Countervailing Duties, 62 Fed. Reg. 27296, 27354 (May 19, 1997). According to petitioners, the Department stated that it "does not take imputed expenses into account in calculating cost. Moreover, normal accounting principles permit the deduction of only actual booked expenses, not imputed expenses, in calculating profit." Id. Petitioners note that the Department's practice of excluding imputed expenses in the calculation of actual profit is articulated and demonstrated in the Department's Policy Bulletin No. 97/1. Petitioners argue that the policy bulletin stated that, in calculating U.S. expenses in the total actual profit calculation, the Department is to "exclude from the calculation imputed amounts for credit expense and inventory carrying costs." See Policy Bulletin No. 97/1: Calculation of Profit for Constructed Export Price Transactions ("CEP Bulletin"), September 4, 1997. Petitioners stated that the Department articulated further in its CEP Bulletin as follows: the unit cost figures in (3) and (4) above {cost of U.S. Merchandise, cost of Home Market Merchandise} include net interest expense from the COP and CV data bases. Thus, there is no need to include imputed interest amounts in the profit calculation since we have already accounted for actual interest in computing "actual profit" under section 772(f). In step two below, however, when allocating a portion of the actual profit to each of its U.S. CEP sales, we will include imputed credit and inventory carrying costs as part of the total U.S. expenses allocation factor. This is consistent with section 772(f)(1) which defines the term "total U.S. expenses" as those described under section 772(d)(1) and (2). According to petitioners, the Department calculated Ta Chen's overall actual profit on the basis of total actual revenue less total actual costs (total costs of good sold, total selling expenses, total movement expenses). Petitioners argue that pursuant to 19 U.S.C. § 1677a(f), the use of actual expenses is the most preferred method for determining total actual profit, allowing the use of actual, not imputed expenses. Petitioners stated that the Department's policy of considering actual expenses and not imputed expenses in the overall profit calculation is mathematically sound. According to petitioners, the use of imputed expenses would effectively double-count the company's cost of financing and would artificially reduce the overall actual profit. Petitioners argue that the Department has unequivocally stated that it will only consider actual interest expenses, not imputed interest expenses, in calculating actual profit. Moreover, petitioners note that the Department's methodology in the instant review and as stated in the CEP Bulletin was applied consistently in other cases. See Certain Stainless Steel Wire Rods from France: Final Results of Antidumping Duty Administrative Review, 63 Fed. Reg. 30185, 30194 (June 3, 1998). Citing Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan, Romania, Sweden, and the United Kingdom: Final Results of Antidumping Duty Administrative Review ("Bearings: Final Results"), 64 Fed. Reg. 35590, 35623 (July 1, 1999), petitioners note that the Department remarked that, "it is our practice to exclude imputed selling expenses in calculating the total actual profit for sales of the subject merchandise and the foreign like product." According to petitioners, in Bearings: Final Results, the Department rejected the respondent's argument that it was unlawful to exclude imputed expenses (credit and inventory carrying costs) from the calculation of the total actual profit, and then apply the profit ratio to a value that included imputed expenses to calculate CEP profit. Therefore, petitioners note that the Department followed its profit calculation methodology as stated in its CEP Bulletin. Petitioners argue that the Department clearly articulated its methodology for the CEP profit calculation in its margin program. According to petitioners, the Department stated that in order to "calculate values for use in CEP profit calculation, we are using actual expenses, not imputed expenses." See Certain Stainless Steel Butt-Weld Pipe Fittings from Taiwan: Ta Chen, Calculation Program, Preliminary Results, last updated July 2, 2001, at lines 490 and 491. Petitioners note that, in the same margin program, the Department stated that it "calculate{d} INDEXUS - the sum of U.S. indirect selling expenses incurred in the U.S., including imputed inventory carrying costs-for use in the CEP profit calculation; used indirect selling expenses allowed under Section772(d)(1)." Id. Moreover, petitioners argue that the Department addressed Ta Chen's arguments in the most recently completed administrative review of this case. In the decision memorandum accompanying the final results, the Department denied Ta Chen's request that the Department consider imputed expenses as proof of total actual profit in the CEP profit calculation. See Issues and Decision Memorandum for the Administrative Review of Certain Stainless Steel Butt-Weld Pipe Fittings from Taiwan: June 1, 1998 through May 31, 1999, at Comment 7. According to petitioners, the Department stated that its CEP profit calculation does not result in a distortion of CEP profit and is consistent with its policy; therefore, it did not consider imputed expenses as part of total actual profit in the CEP profit calculation. Furthermore, petitioners argue that a review of the cases cited by Ta Chen do not stand for the proposition for which they have been cited. Petitioners argue that Thai Pineapple Canning Industry Corp. v. United States, Slip Op. 99-42 (CIT May 5, 1999), the court was considering the use of a single weighted-average cost of production covering the full 18- month period of review. Petitioners also note that in U.S. Steel Group v. United States, 225 F.3rd. 1284 (Fed. Cir. 2000), the majority held that Commerce reasonably interpreted "total expenses" in the calculation of CEP profit to include total U.S. and home market movement expenses, even as the majority allowed "total U.S. expenses" to exclude movement expenses. According to petitioners, in effect, the majority upheld the Department's CEP profit methodology. Petitioners also noted that in NTN v. United States, Slip Op. 01-76 at 17 and 18 (CIT June 22, 2001), the Court denied respondent's request to sub-divide the CEP profit on a subcategory of the merchandise. Therefore, petitioners argue that none of the cases cited by Ta Chen is applicable to or supportive of Ta Chen. Department's Position: We disagree with Ta Chen and agree with petitioners. It is the Department's practice to calculate the CEP profit ratio based on actual expenses, not imputed expenses. In a recent antidumping duty administrative review, the Department articulated that "normal accounting principles only permit the deduction of actual booked expenses, not imputed expenses, in calculating profit. Inventory-carrying costs and credit expenses are imputed expenses, not actual booked expenses, so we have established a practice of not including them in the calculation of total actual profit." See Notice of Final Results for the Administrative Review of Extruded Rubber Thread from Malaysia: October 1, 1998 through September 30, 1999, 66 FR 11254 (February 23, 2001) and accompanying Issues and Decision Memo at Comment 1. The Department acknowledges a CIT ruling on the CEP profit calculation: The Department notes that the CIT in FAG Italia and SNR Roulements v. United States, 118 F. Supp. 2d 1333 (CIT October 13, 2000) ("SNR") directed the Department to "include all expenses included in 'total United States expenses' in the calculation of 'total expenses'." SNR became final on February 23, 2001. See Slip Op. 2001-17 (CIT February 23, 2001). See Notice of Final Results of Antidumping Duty Administrative Review of of Circular Welded Non-Alloy Steel Pipe from Mexico: November 1, 1998 through October 31, 1999 ("Pipe from Mexico"), 66 FR 21311 (April 30, 2001) and accompanying Issues and Decision Memo at Comment 4. In both SNR and FAG Italia, the Court held that Commerce's CEP methodology with respect to imputed expenses was not in accordance with law. The United States has appealed both judgements. However, in Ausimont SPA v. United States, Slip. Op. 01-92 (CIT August 2, 2001), the Court sustained Commerce's methodology. Consequently, until such time as these decisions are final, the Department will continue to apply its current methodology in excluding imputed expenses when calculating profit. Comment 4: CEP Sales Expenses Petitioners argue that Ta Chen has stated on multiple occasions during this review that it could not report actual direct selling expenses for its CEP sales, because TCI's sales from its U.S. warehouses could not be traced back to specific importations. Petitioners argue that Ta Chen maintained that it was not able to trace direct sales expenses associated with movement of product from Taiwan to TCI's U.S. warehouse to specific CEP sales because multiple shipments may be have the same heat number, and more than one heat number may be shipped under the same item number for a given sale {invoice}. Citing the TCI Verification Report, petitioners argue that the Department verified Ta Chen's claim that it could report CEP sales-specific expenses as it found that a large percentage of Ta Chen's sales documentation sampled at verification demonstrated that Ta Chen could have reported import-specific sales expenses for its CEP sales. Furthermore, petitioners state that the Department recognized in its Preliminary Results, that Ta Chen has the ability to trace CEP sales to import-specific charges, but decided it was too burdensome for Ta Chen. Petitioners argue that the Department should base its decision on the record before it and not speculate as to the burden on Ta Chen. Petitioners assert that Ta Chen did not state or demonstrate that the exercise of tracing CEP sales to import- specific charges would be overly burdensome. Petitioners claim that Ta Chen refuses to trace CEP sales to import- specific expenses because the reported average CEP direct selling expenses are very different than identical expenses reported for Ta Chen's EP sales, which are import specific. As an example, petitioners argue that the Department's CEP movement variable calculation, which sums up the reported values for foreign freight to port, foreign brokerage, ocean freight, marine insurance, and export duties is lower than actual EP foreign movement costs. Petitioners argue that the Department should not reward Ta Chen for misleading it during this and prior administrative reviews. In its rebuttal brief, Ta Chen argues that the U.S. movement expenses (i.e., foreign inland freight to port, foreign brokerage, ocean freight, marine insurance and export duties) associated with the CEP sales were properly reported. Citing TCI's Verification Report, Ta Chen argues that the CEP sales expenses must be allocated because they could not be calculated on a sale-specific basis. Ta Chen argues that the Department verified that selected heat numbers for a particular fitting were listed on eight separate Ta Chen to TCI invoices with no possible means of knowing which one was the actual invoice for the particular fitting. Ta Chen also argues that a particular TCI sale of one fitting may have multiple heat numbers, all of which then might (as in the selected heat number) trace to eight Ta Chen Taiwan to TCI invoices, with quantities as to each invoice not stated. Ta Chen notes that TCI reported 25,000 sales in this review, an enormous volume of sales relative to the US$5 million of trade involved. Ta Chen argues that the petitioners admitted that the Department found that tracing of TCI sales back to movement costs from Taiwan would be "too burdensome" to do, even if possible. Ta Chen argues that it did state and show that the exercise of tracing TCI U.S. warehouse sales to import-specific charges is too burdensome. According to Ta Chen, the extensive discussion of the tracing issue in Ta Chen's submissions speaks for itself as to the burden. Ta Chen asserts that contrary to petitioners assertions, it provided substantial evidence supporting the Department's finding that tracing of TCI sales is too burdensome. Ta Chen argues, with respect to petitioners' statements that the allocated freight movement costs for TCI's U.S. warehouse sales are less than the direct shipments from Taiwan to unaffiliated U.S. customers, that petitioners did not allege any errors with those figures until now. Ta Chen stated that it submitted worksheets for the allocated warehouse figures, provided sample documentation, and that the Department verified the figures and found no errors. Finally, Ta Chen argues that the individual shipment figure in Ta Chen's questionnaire responses indicates that Ta Chen's shipments to TCI warehouses were massive (involving individual quantities of ten to twenty- five times the individual quantities on indent (i.e., back to back sales with invoicing through TCI) shipments from Taiwan direct to unaffiliated U.S. customers). Further, Ta Chen notes that brokerage costs are fixed costs. According to Ta Chen, for some costs (e.g., brokerage costs), the greater the quantity shipped, the lower the per unit broker cost. Department's Position: We agree with Ta Chen and disagree with petitioners in part. The Department noted in its Preliminary Analysis Memo that although Ta Chen could report direct sales expenses for a majority of a sample done by the Department at verification, we determined that this process would be too burdensome for Ta Chen to make a complete report. Contrary to petitioners' assertion, the Department did not speculate as to the burden on Ta Chen, but confirmed the evidence on the record. Prior to verification, Ta Chen stated that: Ta Chen reported about 25, 000 U.S. sales in this review. There is no computer record/date base, sale by sale, of the heat number for each sale. Thus, even if tracing by heat number of each Ta Chen U.S. b/w fitting sale all the way back to Ta Chen Taiwan was viable (it is not), it would have to be done manually for about 25,000 sales. In such cases, DOC has permitted the simplifying allocation approach done here, even if a more transaction-specific approach was possible, simply because any other approach is too burdensome (especially in the short time permitted to answer DOC questionnaires) as well as the reasonable allocation approach here causes no apparent distortion to the dumping margin calculation. See Ta Chen's May 11, 2001 submission at 5. With respect to petitioners' argument that using Ta Chen's current POR weight-averaged methodology when calculating CEP direct selling expenses yields a significant percentage difference for movement expenses, we disagree. Although petitioners argue that the Department's preliminary calculation for direct CEP movement costs appeared lower than that for EP, the Department does not know if there were other circumstances affecting Ta Chen's lower direct CEP movement costs when compared to weight-averaged EP expenses, such as number of units shipped. More importantly, based on information on the record, we cannot presuppose which sales could have been traced and which could not as we did not instruct Ta Chen to trace those sales which could be traced. Therefore, the Department continues to determine that the POR weighted-average methodology used by Ta Chen should not be amended for the purposes of this final determination. Comment 5: U.S. Short-Term Interest Rate Petitioners argue that in recalculating the weighted-average borrowing rate for Ta Chen, the Department inadvertently did not include the US$400,000 compensating balance from Ta Chen's old loan and the US$111,658 guarantee for the new loan in the cost of credit that Ta Chen had omitted in the U.S. short-term interest rate calculation. See Ta Chen's Section BCD Supplemental Questionnaire Response ("Supp. BCD Response"), dated March 5, 2001 at 27-28. Petitioners argue that the new weighted-average short term interest rate should be 10.62%, which includes the old and new loan compensating balances as interest expenses. According to petitioners, the revised weighted-average short-term interest rate of 10.62% should be applied to the U.S. imputed credit expenses calculation (IMPRCREDI) and the U.S. inventory carrying costs (INVCARU). In its rebuttal brief, Ta Chen rejects petitioners' claim that the Department should adjust TCI's U.S. short-term borrowing cost by adding compensating balance requirements and loan guarantees to interest expense as illogical and unsupported. Citing its Sections A,B,C and D Supplemental Questionnaire Response ("April 23 Response"), dated April 23, 2001, Ta Chen argues that the amount of a compensating balance is not an interest payment nor a loan guarantee. Ta Chen argues that it did not include the $111,658 loan guarantee in its U.S. dollar, short-term interest rate as this was a promissory note issued by Ta Chen to TCI. According to Ta Chen, there were no compensating balance requirements during the POR. Department's Position: We disagree with petitioners. Petitioners correctly note Ta Chen's supplemental questionnaire response in which it stated that "there was a compensating balance in the amount of US$400,000 on the old loan." See Supp. BCD Response at 27-28. The compensating balance requirement is a deposit requirement that Ta Chen must carry on that account at the relevant financial institution, in order to qualify for the loan. There is no indication that Ta Chen lost title to any portion of the compensating balance during the POR. Therefore, contrary to petitioners' claim, the compensating balance cannot be viewed as an interest payment and therefore is inappropriate for inclusion in the calculation of the short term interest rate. Petitioners also note that Ta Chen stated that "TC {Ta Chen} properly did not include US$111,658 in its U.S. dollar, short-term interest rate as this was {a} promissory note issued by TC to guarantee debt of TCIC {TCI}." See April 23 Response at 8. Ta Chen stated on the record that "there is no interest bearing on these promissory notes." See Id. For these final results, the Department is not aware of evidence on the record to contradict Ta Chen's claim. As Ta Chen paid no interest on the promissory note amounts, there is no amount to consider in the calculation of the short term interest rate. Comment 6: United States Inventory Carrying Period Petitioners claim that the Department failed to use the revised number of days inventory is held in the United States by TCI. According to petitioners, the correct number of days inventory is held in the United States by TCI is 405, not 349 days as used by the Department. Petitioners argue that the INVCARU should be calculated as: INVCARU = TCICOSTU * 405 / 365 * .1062 (proposed weighted-average short-term interest rate by petitioners (see Comment 5 above)) = .1178 (11.78%). In its rebuttal brief, Ta Chen argues that petitioners' claim that 11.78% (as a percent of cost of goods sold) inventory carrying cost is enormous, when according to Ta Chen, TCI's calculated figure is only 1.4% for subject merchandise as reported in their December 26, 2000 submission. Department's Position: We agree with the petitioners in part, and disagree with Ta Chen. The Department's use of 349 days as the number of days inventory is held in the U.S. by TCI was incorrect. In its original U.S. sales response Ta Chen stated that it held inventory in the United States for 349 days. After a careful review of the record evidence, we note that in Ta Chen's March 5, 2001 submission, Ta Chen revised its U.S. indirect selling expense and the number of days TCI held inventory to 405. For these final results, we used 405 days as the number of days TCI hold inventory. We note that Ta Chen did not challenge the Department's formula for calculating the inventory carrying costs in the United States. Consequently, we have changed the margin calculation accordingly. See Final Analysis Memo at 5. We did not use further revise the short-term interest rate in our calculation, as proposed by petitioners, for reasons discussed in Comment 5 above. Comment 7: U.S. Indirect Selling Expenses Petitioners raised two points with regard to U.S. indirect selling expenses: 1) petitioners argue that the U.S. indirect selling expenses used by the Department should be based upon Ta Chen's fiscal year 2000 financial statements rather than 1999 and 2) Ta Chen failed to include the financing expenses of TCI in the same calculation. Petitioners argue that by relying on the fiscal year 1999 financial statements, Ta Chen ignored the Department's longstanding policy of using the financial statements that most closely represent the POR. See Issues and Decision Memorandum for the Investigation of Certain Polyester Staple Fiber from the People's Republic of Korea: April 1, 1998 through March 31, 1999 ("Polyester Fiber from Korea"), dated March 22, 2000, at 14 (Comment 8) and Certain Corrosion-Resistant Carbon Steel Flat Products and Certain Cut-To-Length Carbon Steel Plate from Canada: Final Results of Antidumping Duty Administrative Review ("Plate from Canada"), 62 FR 18,488, 18,456 (April 15, 1997). Petitioners note that TCI's fiscal year 2000 represents seven months of the twelve-month period of review. Citing Badger- Powhattan, A Div. of Figgie Intern v. United States, 633 F. Supp. 1364, 1373 (CIT1986); appeal dismissed, 808 F. 2d 823 (Fed. Cir. 1986) and Koyo Seiko Co., Ltd. v. United States, 746 F. Supp. 1108, 1110 (CIT 1990), petitioners argue that relying on the fiscal year 1999 financial statements, the Department is unable to carry out its legal mandate to calculate the most accurate dumping margin possible. Based on a greater period of time being covered by the 2000 financial statement and based on their being more recent, petitioners argue that the Department would calculate the most accurate dumping margin possible by using the fiscal year 2000 financial statements rather than 1999's financial statements. With respect to the calculation of U.S. indirect selling expenses, petitioners assert that Ta Chen failed to include TCI's cost of financing in the U.S. indirect selling expense calculation. According to petitioners, in order to correct this, the Department should use Ta Chen's fiscal year 2000 financial statements and include TCI's 2000 interest expenses. In its rebuttal brief, Ta Chen argues that it properly used its operating costs for the fiscal year ending during the POR, per the Department's practice in past administrative reviews of Ta Chen and TCI. Ta Chen argues that TCI's selling efforts before the POR contributed to the POR sales, whereas later fiscal year operating costs have their affect on sales covers a period after the POR. According to Ta Chen, the Department has used TCI's operating costs for the most recently completed fiscal year ending in the POR in prior review periods, so to change its methodology now would not properly reflect costs over a period of time covering several review periods. Ta Chen argues that petitioners' results-oriented alternate methodology would increase costs and these costs would improperly exceed the actual costs incurred. According to Ta Chen, petitioners are raising a methodological change, which they should have made long ago. Ta Chen argues that petitioners suggest a switch in methodology when doing so would increase costs and not doing so decreases costs. According to Ta Chen, such a contrived, results- oriented approach over multiple reviews would mean that overall costs allocated to sales would improperly exceed the actual costs incurred. Ta Chen also argues that the Department thoroughly reviewed and verified TCI's reported operating costs in TCI's questionnaire response. Ta Chen claims that arguing for a new methodology at this point requires that TCI's operating costs be reduced for direct selling expenses reported elsewhere in the questionnaire responses, to avoid double counting. Ta Chen stated that information as to such deductions would have been submitted and verified by TCI for the appropriate fiscal year already reported. Ta Chen argues that at this point, the Department does not have such information as to apportion deductions to the period petitioners now want to use. Ta Chen also argues that petitioners are wrong in claiming that TCI did not report interest costs. Ta Chen argues that TCI submitted interest costs in its December 26, 2000 submission. Ta Chen claims that adjusting for both TCI financing (interest) costs as well as imputed inventory and credit interest costs impermissibly double counts interest costs. Ta Chen notes that the Department's practice has not been to include both actual and imputed interest costs in the dumping margin because doing so would improperly double count such costs. Department's Position: We disagree with Ta Chen and petitioners in part. In the Preliminary Results, the Department used TCI's FY 1999 operating costs to calculate its U.S. indirect selling expenses, which included information for five months of the POR. Petitioners suggest that the Department use fiscal year 2000 data to calculate U.S. indirect selling expenses. Although Ta Chen submitted fiscal year 2000 financial data, we have not considered any of this data as the basis for calculating U.S. indirect selling expenses because Ta Chen has not been given the opportunity to adjust the fiscal year 2000 financial data, as it normally does for antidumping purposes. Therefore, we have not altered our U.S. indirect selling expense calculation from the Preliminary Results. Regarding petitioners' second point with respect to the 2000 interest expense, we disagree. Because the Department is using fiscal year 1999 financial data as the basis for U.S. indirect selling expenses, we are using Ta Chen's fiscal year 1999 interest expense. Comment 8: Home Market Indirect Selling Expenses Petitioners argue that two salespersons (i.e., a sales manager and a sales clerk) who manage sales in the home market spend time on home market sales. Petitioners claim that the sales manager spends 50 percent of his time on home market sales and a sales clerk spends 100 percent of her time on home market sales. Petitioners argue that 100 percent of the sales manager salary should be allocated correctly to the home market indirect selling expenses. Petitioners claim that since the sales manager spends 50 percent of his time on home market sales, he must spend the other 50 percent on export sales. According to petitioners, Ta Chen allocated to the home market sales 50 percent of the sales manager's wage fund, labor insurance, and insurance benefits, but failed to allocate only 50 percent of the sales manager's salary, instead allocating the full amount of the manager's salary, NT$ 46,273 to home market sales. In its rebuttal brief, Ta Chen argues that petitioners' equating fifty percent of the manager's time on export sales to mean that fifty percent was spent on U.S. sales in particular is not correct. Citing its February 6 submission, Ta Chen argues that the manager is not involved with U.S. sales. Ta Chen also argues that its December 26, 2000 submission shows there were no Ta Chen Taiwan indirect selling expenses as far as sales to TCI, indicating that the expenses questioned by petitioners are properly considered administrative, not selling. Citing its March 5, 2001 submission, Ta Chen argues that Mr. Kuo's salary, NT$42,000 is not Mr. Kuo's actual salary, but the portion of his salary used for purposes of determining benefits. Department's Position: We agree with Ta Chen and disagree with petitioners. Petitioners make two allegations in this comment. First, they allege that Ta Chen overstated its home market indirect selling expenses by attributing 100% of the sales manager's salary to home market sales rather than attributing to home market indirect selling expenses the amount of time which he spends on home market sales (50%). Petitioners arrived at this conclusion because they noted that the sales manager's monthly salary was similar to the portion of the sales manager's salary which is used to calculate benefits. By virtue of its speculative nature, however, this comparison in and of itself cannot outweigh Ta Chen's record statement that it had already made the 50% allocation. See Supp. BCD Response at 7. Second, petitioners also speculate that as the sales manager spends 50% of his time on home market sales, it would be reasonable to presume that he spends the remaining 50% of his time on U.S. sales. However, there is no factual basis in the record to support petitioners' allegation, and so, no basis to adjust U.S. indirect selling expenses on these grounds. Therefore, we did not adjust any portion of either Ta Chen's reported home market or U.S. indirect selling expenses. Comment 9: General and Administrative Expenses Petitioners note that Ta Chen's Second Supplemental Questionnaire Response dated April 6, 2001, shows that Ta Chen paid a total of NT$18,703,000 in the following categories: "bonus to employees-cash, bonus to employees-stock, and bonus to directors and supervisors" in its statement of stockholder's equity. Petitioners argue that it appears the NT$18,703,000 was not recorded on Ta Chen's profit and loss account. Petitioners claim that in order for Ta Chen to pay bonuses from stockholder's equity, Ta Chen would have had to debit the stockholder's equity and credited the cash account. According to petitioners, this entry would not be reflected in the profit and loss account, because the accounting entry would not affect an expense account (such as wages, bonuses, etc). Citing Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Wire Rod from Japan, 63 Fed. Reg. 40,434, 40,441, (July 29, 1998); Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof, from France, Germany, Italy, Japan, Romania, Singapore, Sweden, and the United Kingdom, 63 Fed. Reg. 33,330, 33,337 (June 18, 1998); Final Determination of Sales at Less Than Fair Value: Oil Country Tubular Goods from Austria, 60 Fed. Reg. 25,908, 25,914 (May 12, 1997), petitioners argue that the Department has recognized that payments made to employees that are only reflected in the stockholder's equity should be considered in the cost of manufacturing, because these payments represent compensation for services that the employee provided the company. Petitioners argue that the Department should include the NT$18,703,000 in Ta Chen's calculation of general and administrative expenses. In its rebuttal brief, Ta Chen argues that its general and administrative expenses are not understated, but properly reported. Ta Chen notes that petitioners make their argument for the first time ever, after the completion of the questionnaire process and verification, and based on information in the record since Ta Chen's first submission of November 27, 2000. As such, Ta Chen had no opportunity to address them factually. Department's Position: We agree with Ta Chen and disagree with petitioners. Ta Chen's November 27, 2001, submission at Attachment 23 shows the change in the stock owner's equity for Ta Chen's FY 1999 as identified by petitioners. We note that petitioners acknowledge that it 'appears' that the change in stockowner's equity was made from the company's equity and did not get recorded in Ta Chen's profit and loss account. While we agree that if the facts on the record clearly demonstrated the transaction as described by petitioners, then the facts would warrant making petitioners' suggested changes. However, after review of the record evidence, there is not sufficient evidence to determine that the payments were made from the company's equity, and therefore not a sufficient basis to recalculate the general and administrative expenses as suggested by petitioners. Comment 10: Reclassification of EP sales to CEP sales Citing AK Steel Corp v. United States, 226 F. 3d 1361 at (Fed. Cir. 2000) ("AK Steel Corp."), petitioners argue that the Department should uphold the Court's decision that "a transaction such as those here, in which both parties are located in the United States and the contract is executed in the United States cannot be said to be outside the United States." See Id. at 1370. Petitioners argue that the Department should continue to consider all of Ta Chen's U.S. sales as constructed export price transactions and should continue to make the additional required deductions for CEP sales (e.g., inventory carrying costs, U.S. indirect selling expenses, CEP profit, etc.). Ta Chen did not comment on this issue. On a related matter, petitioners argue that the Department inadvertently failed to deduct U.S. indirect selling expenses and U.S. profit from the originally designated EP transactions that were reclassified as CEP sales. Petitioners suggest that the Department correct this ministerial error by inserting the following programming statement in the margin calculation program: (IF SALEU = 'EP' THEN SALEU = 'CEP'). Ta Chen did not comment on this issue. Department's Position: We agree with petitioners. Ta Chen reported both EP and CEP sales to the United States in its U.S. database. After careful analysis, the Department preliminarily determined that all of Ta Chen's reported U.S. sales should be reclassified as CEP sales in accordance with section 772(b) of the Act, based on our finding that the subject merchandise was first sold by TCI after having been imported into the United States: In the instant case, all of the sales at issue were "back-to-back" sales; that is, Ta Chen sold pipe fittings to Ta Chen's U.S. affiliate, TCI, and then TCI sold the pipe fittings to the unaffiliated U.S. customers at a marked-up price to account for TCI's commission and selling expenses. See Sections B, C, and D supplemental questionnaire response (February 6, 2001) at 5. In addition, the record evidence demonstrates that for sales reported by Ta Chen as EP sales, the sale to the first unaffiliated customer was made between TCI and the unaffiliated customer in the United States. See Sections B, C, and D supplemental questionnaire response database (February 6, 2001). See Preliminary Results at 9. As Ta Chen did not comment on this issue, we continue to consider all of Ta Chen's U.S. sales as CEP sales. Secondly, we agree with petitioners' argument that the Department inadvertently failed to deduct U.S. indirect selling expenses and U.S. CEP profit from the reported EP transactions that were reclassified as CEP sales. We have changed the margin calculation accordingly. See Final Analysis Memo at 5.. RECOMMENDATION: Based on our analysis of both the comments received and our own findings, we recommend adopting all of the above changes and positions and adjusting the model match and margin calculation programs, accordingly. If these recommendations are accepted, we will publish our final results of review, including Ta Chen's final weighted-average dumping margin in the Federal Register. AGREE____ DISAGREE____ _____________________________________ Faryar Shirzad Assistant Secretary for Import Administration _____________________________________ Date _________________________________________________________________________ footnotes: 1. For purposes of this analysis, we are referring to freight costs that TCI incurs when transferring inventory among its warehouses in the United States as intra-warehouse transfer expenses. 2. The Department reclassified Ta Chen's reported EP sales to CEP (see Comment 10 below).