66 FR 65877, December 21, 2001 A-427-818 Investigation Public Document Group II/Office 5: ERE/VLS MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration Group II DATE: December 13, 2001 SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Investigation of Low Enriched Uranium from France Summary This memorandum addresses issues briefed or otherwise commented upon in this proceeding. Section A lists the issues briefed by the parties. Section B sets out the scope, or product coverage, of the investigation. Section C analyzes the comments of the interested parties and other participants and provides our recommendations for each of the issues. Issues 1. Common antidumping and countervailing duty scope issues 2. Amendment of the scope to exclude imported enriched uranium consumed in the conversion or fabrication of exported uranium 3. Double-counting the subsidy in the calculation of the dumping margin 4. Treatment of "blended price" contracts 5. Calculation of the less than fair value (LTFV) margin based on delivered and undelivered sales 6. Valuation of electricity as a component of low enriched uranium (LEU) 7. Whether to collapse Eurodif and Cogema for the purpose of relying on Cogema's cost of providing defluorination services 8. Whether defluorination costs are at arm's length 9. Accrual for tails disposal 10. Calculation of a constructed export price (CEP) offset 11. Recalculation of inventory carrying costs 12. Imputing certain expenses to Cogema/Eurodif 13. Selling, general and administrative (SG&A) expenses 14. Financial expenses 15. Purchased product 16. Constructed value (CV) profit B. Amended Scope of the investigation The scope of this investigation covers low enriched uranium (LEU). LEU is enriched uranium hexafluoride (UF6) with a U235 product assay of less than 20 percent that has not been converted into another chemical form, such as UO2, or fabricated into nuclear fuel assemblies, regardless of the means by which the LEU is produced (including LEU produced through the down- blending of highly enriched uranium). Certain merchandise is outside the scope of this investigation. Specifically, this investigation does not cover enriched uranium hexafluoride with a U235 assay of 20 percent or greater, also known as highly enriched uranium. In addition, fabricated LEU is not covered by the scope of this investigation. For purposes of this investigation, fabricated uranium is defined as enriched uranium dioxide (UO2), whether or not contained in nuclear fuel rods or assemblies. Natural uranium concentrates (U3O8) with a U235 concentration of no greater than 0.711 percent and natural uranium concentrates converted into uranium hexafluoride with a U235 concentration of no greater than 0.711 percent are not covered by the scope of this investigation. Also excluded from these investigations is LEU owned by a foreign utility end-user and imported into the United States by or for such end-user solely for purposes of conversion by a U.S. fabricator into uranium dioxide (UO2) and/or fabrication into fuel assemblies so long as the uranium dioxide and/or fuel assemblies deemed to incorporate such imported LEU (i) remain in the possession and control of the U.S. fabricator, the foreign end-user, or their designed transporter(s) while in U.S. customs territory, and (ii) are re-exported within eighteen (18) months of entry of the LEU for consumption by the end-user in a nuclear reactor outside the United States. Such entries must be accompanied by the certification of the importer and the end user. Such entries must be accompanied by the certifications of the importer and the end user. The merchandise subject to this investigation is classified in the Harmonized Tariff Schedule of the United States (HTSUS) at subheading 2844.20.0020. Subject merchandise may also enter under 2844.20.0030, 2844.20.0050, and 2844.40.00. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise subject to this proceeding is dispositive. Discussion of comments raised by interested parties and other participants Comment 1: Common antidumping and countervailing duty scope issues Goods v. Service Issues Parties in all eight concurrent investigations of this product have submitted comments on this issue. For a full discussion see Notice of Final Affirmative Antidumping Duty Determination: Low Enriched Uranium from France. Comment 2: Amendment of the scope to exclude imported enriched uranium consumed in the conversion or fabrication of exported uranium On August 17, 2001, petitioners filed a request that the Department clarify the scope of these investigations to exclude low enriched uranium imported solely for further processing and consumption outside the United States. Petitioners argue that USEC never intended to subject sales of LEU outside of the United States to U.S. trade law disciplines simply because foreign purchasers elect to have their LEU converted or fabricated in the United States prior to use in a foreign reactor. Additionally, they state that discussions with Customs have lead parties to believe that in order to address Customs' concerns over the use of temporary import bonds (TIBs) for such imports, parties would be required to make adjustments to normal business practices that will increase the cost of U.S. conversion/fabrication for foreign utilities - an unintended result. In order to resolve this issue, petitioners requested that the following paragraph be added to the scope of these investigations: Also excluded from these investigations is LEU owned by a foreign utility end-user and imported into the United States by or for such end-user solely for purposes of conversion by a U.S. fabricator into uranium dioxide (UO2) and/or fabrication into fuel assemblies so long as the uranium dioxide and/or fuel assemblies deemed to incorporate such imported LEU (i) remain in the possession and control of the U.S. fabricator, the foreign end-user, or their designed transporter(s) while in U.S. customs territory, and (ii) are re-exported within eighteen (18) months of entry of the LEU for consumption by the end-user in a nuclear reactor outside the United States. In addition, petitioners assert that the proposed scope clarification can be easily administered by the Department and Customs through the use of certifications submitted with each entry of LEU for conversion/fabrication and re-export. Petitioners submitted proposed certification forms that they indicate would be appropriate for importers, and end users, to use to comply with this exclusion which include, among other terms, that the fabricated material be exported within 18 months. Respondent agrees that implementing an exclusion for imports that are entering the U.S. market only for fabrication prior to being shipped to third countries is proper and appropriate. Respondent notes that subjecting such imports to AD/CVD duties would only serve to shift fabrication offshore, thus causing harm to both fabricators and customers of both respondent and petitioners. However, respondent does not agree with the petitioners' proposed certifications. According to respondent, the proposed certificates are both unnecessary and burdensome. Respondent argued that the Court of International Trade has emphatically rejected the notion that TIB procedures cannot be used in this industry (citing to USEC, Inc. and the United States Enrichment Corp. v. United States, LEXIS 62 at * 18, Slip Op., 2001-58 (Ct. Int'l Trade May 17, 2001). Respondent asserts that because TIB procedures are applicable to imports of uranium, petitioners, by requesting this scope clarification and certification requirements, are inventing a problem that does not exist in a bid to have the Department adopt extreme and burdensome certification requirements. Respondent asserts that the certifications proposed by petitioners impose restrictions that would, not only apply to the subject LEU even long after the LEU is not within the United States (i.e., that they require use in nuclear reactors outside the United States), but would also reduce the flexibility of foreign entities to use book transfers and swaps that are commonly employed within the industry to minimize transportation costs. In the alternative, respondent proposes certifications that do not place what they consider to be unnecessary and burdensome requirements on the importer and end user. Two importers affected by this exclusion request, General Electric Company and Framatome ANP, Inc., submitted letters supporting the petitioners' proposed exclusion. In addition, petitioners cited to the Department's experience with administering the suspension agreement in the antidumping investigation of uranium from the Russian Federation in support of their assertion that the language of the certificates needs to be as proposed. The Department Position: We agree with both petitioners and respondents that LEU imported solely for further processing and consumption outside the United States is not within the scope of these investigations. The difficult question involves the appropriate method to implement such exclusion in light of the fact that all LEU entering the United States has the physical characteristics of the subject merchandise. We agree with respondents that the fungible nature of the product does not preclude the application of TIB procedures; nor does it alter the fact that the Department does not have the authority to apply duties to TIB entries or include such entries within the scope of an AD or CVD investigation. However, having heard from the industry that such procedures will have the unintended effect of requiring adjustments to normal business practices that will increase the cost of U.S. conversion/fabrication for foreign utilities, we determine that it is appropriate to develop an alternative procedure of effectuating the exclusion. We have carefully considered the comments of petitioners and respondents with respect to the need for and the extent of importer and end user certifications. We agree with petitioners that because of the fungibility of the subject merchandise, such certifications need to be explicit in their language. We find that because the scope exclusion is only intended to apply to LEU imports for further processing and consumption outside the United States, it is appropriate for the importers and end users to make such certifications at the time of importation. Therefore, we are excluding from the investigations and orders low enriched uranium imported solely for further processing and consumption outside the United States and we have adopted the language of the certifications as proposed by petitioners. In order to ensure the effectiveness of such certification system, we intend to work closely with Customs to implement these procedures. Comment 3: Double-counting the subsidy in the calculation of the dumping margin The European Commission (EC) stated that the Department's preliminary antidumping (AD) margin "double counted" the subsidy found by the Department in the companion countervailing duty (CVD) investigation. The EC maintains that the subsidy found by the Department - based on the more than adequate remuneration paid to Eurodif by Electricity de France (EdF) - created the dumping margin. The EC also maintains that Article VI:5 of the General Agreement on Tariffs and Trade (GATT) proscribes the imposition of both antidumping and countervailing duties where both the subsidy and the dumping are the result of the same underlying situation. The EC also points out that the 1995 World Trade Organization (WTO) Subsidies Agreement introduced new types of subsidies to be covered by the Agreement, including the purchase of goods by a government, the type of subsidy found in the Department's preliminary determination in this investigation. Thus, the EC concludes that Article VI:5 must be read within the context of the WTO Subsidies Agreement. The petitioners challenge the EC's premise that the dumping margin is created by the Department's subsidy findings. The Department's antidumping calculations are not based on the domestic prices of Eurodif's LEU. The Department based the normal value aspect of its calculation on the constructed value of LEU. The Department resorted to constructed value because Cogema/Eurodif's POI shipments were made pursuant to contracts entered into prior to the POI. The petitioners also point out that the plain language and historical application of Article VI:5 of the GATT are limited to export subsidies. The more than adequate remuneration paid by EdF for Eurodif's LEU is a domestic subsidy, not an export subsidy. Article VI:5 does not apply to domestic subsidies. Cogema/Eurodif acknowledges that this investigation does not involve an export subsidy. However, the respondent states that there is a potential issue of double-counting. Respondent alleges that the Department's preliminary CVD calculation was based on a comparison of the prices EdF paid for LEU, after being artificially inflated by the Department, to LEU prices paid by other purchasers. Similarly, respondent alleges that the Department artificially inflated the constructed value of Eurodif's LEU in the antidumping calculation by inventing a charge for EdF electricity that had been provided at zero cost, on a pass-through basis. The Department's Position: We disagree with Cogema/Eurodif's assertions that the Department artificially inflated the prices EdF paid for LEU in the countervailing duty (CVD) investigation and the constructed value of LEU in the antidumping (AD) investigation. As we discuss in Comment 6, below, electricity is a component in the production process for LEU and must be valued for constructed value. With respect to the EC's argument about Article VI:5 of the GATT and alleged double counting, section 772(c)(1)(C) of the Uruguay Round Act fully comports with that Article and limits any adjustment to the dumping calculation to export subsidies. The parties do not dispute that the excess remuneration for Eurodif sales to EdF is not an export subsidy, so an adjustment under that statutory provision is not contemplated. Moreover, given the record in this case and the arguments of the parties, the Department is not in a position to determine whether an adjustment for a non-export subsidy could be made under U.S. law. In the present case, it is not clear whether there is any double counting given that the Department is not using Eurodif's prices to EdF, which are the prices that involve the excessive remuneration, to establish normal value. The Department is instead comparing Eurodif's U.S. prices with constructed value. The EC claims that a constructed value calculation would entail the same double counting as one based on sales prices in France. However, this assertion was not explained in any detail, was not supported by record evidence, and did not address the Department's methodology in this case. Despite our repeated requests, Cogema/Eurodif has chosen not to pursue the double counting issue, even though it is the party that has the relevant information and is the one directly affected by this matter. Indeed, after the EC raised a theoretical concern about double counting in a letter to the Department, Under Secretary Aldonas' response specifically stated that " ... respondents would be well advised to reduce conceptual argument to specific suggestions as to how our current calculations or methodologies would result in the alleged double counting." See, letter to M. P. Carl, Director-General for Trade, European Commission, from Grant D. Aldonas, Undersecretary for Trade, dated November 7, 2001, at page 1. The Department provided these letters to all parties and requested comment. In its submission, the French respondent did not advance the EC's claim, only stating that the Department properly did not find an export subsidy to exist in the CVD investigation. See, letter to the Honorable Grant Aldonas, dated November 15, 2001. Even after the EC noted the issue in a second letter (received two weeks before the extended final date), the French respondent did not address this issue in any detail, simply agreeing with the EC that there is a potential issue of double counting. See, Letter to The Honorable Donald L. Evans, dated November 29, 2001. At the same time, the petitioners vigorously contested the EC's broad theoretical argument under U.S. law and the facts of this case. Even though the French respondent has not pursued this issue, we have attempted to examine the factual basis of the EC's claim. We have found the record in the AD and CVD proceedings entirely deficient. For example, we examined the record in the dumping case to see if there was a way to determine how and to what extent the excess remuneration that we found in the CVD case was reflected in the profit calculation or any other aspect of the dumping determination. However, there simply is no information on the dumping record that would allow us to make a reasonable assessment of this allegation. In particular, the record of the dumping investigation does not contain the information that led to our conclusion that there was excess remuneration paid in the CVD investigation (the prices paid by EdF and the benchmark information). Because Cogema/Eurodif has designated the source documents for this information as proprietary, the Department cannot place that information on the record of the dumping investigation without Cogema/Eurodif's approval. Despite our request that Cogema/Eurodif place that information on the dumping record, it has refused to do so. Given this lack of information, the Department cannot even evaluate, based on the information before it in the dumping investigation, whether and/or to what extent the EC's claim has any merit from a purely factual basis. Even if the Department had this information on the record of the dumping investigation, we have no way of knowing the extent to which the excess remuneration determined in the CVD investigation is reflected in the financial figures it has used to calculate constructed value in the dumping investigation. In this case, the profit calculation is based on the 1999 financial statements of CEA Industrie, a holding company for the industrial interests of the French Atomic Energy Commission, which consolidates the results of the various companies in the French nuclear industry. Cogema/Eurodif has not suggested a methodology for accurately quantifying and extracting such a figure from the overall profit rate that we used. We also attempted to examine this allegation from the perspective of the potential effect of the subsidies on the cost of production information used in the AD determination. However, because of our inability to merge the records of the two investigations and the lack of information about the potential relationship between the subsidies in the CVD case and the AD calculation, we were unable to examine the EC's claim from this perspective as well. For these reasons, we cannot accept the EC's claim for an adjustment based on the record in this case. Therefore, we do not reach petitioners' arguments about whether the Department would have a legal basis for such an adjustment. Comment 4: Treatment of "blended price" contracts The petitioners contend that two phenomena characterize the environment of the enrichment industry during the POI. First, nearly all contracts for LEU are long-term contracts. Second, the prices for separative work units (SWU) had been declining for the past few years prior to the filing of the petitions for antidumping and countervailing duty relief. Within the background of this environment, petitioners have classified Cogema's enrichment contracts with U.S. utilities during the POI into three types: (1) a contract with a new customer ( i.e., one with whom Cogema had no previous contractual relationships); (2) an amendment to an existing contract that did not change the utility's obligations with respect to previously contracted-for quantities or prices; and (3) an amendment to an existing contract that combined the utility's previous obligation to purchase enrichment quantities with a new obligation to purchase additional enrichment quantities at a new price for all enrichment (blended price). The petitioners assert that this third category requires the Department to conduct a novel antidumping analysis. If the original contract between Cogema and the U.S. utility had remained unchanged and a second contract had been signed during the POI for an additional quantity of enrichment at a new price, the Department would examine the second contract for its LTFV calculation. The petitioners claim that, using the amended contract -- providing for an additional quantity of enrichment with a new price for the total amount of enrichment -- and applying the Department's traditional LTFV methodology would result in a skewed LTFV calculation. This is so, petitioners argue, because, at the time of the amendment, the price in the amendment will be lower than that in the previous contract but higher than the prevailing market price at the time of the amendment. To properly examine a "blended price" in an amended contract, the petitioners emphasize that the Department must consider the commitment to purchase additional quantities of enrichment as the consideration for the difference between the blended price and the prevailing market price. Petitioners assert that the Department should examine only additional quantities contracted for during the POI as POI sales. Moreover, the price reduction from the original contract price to the amended contract blended price ought to be treated as a discount allocable to the sale of the new, additional quantity. To support this proposed novel LTFV methodology, the petitioners supply several hypothetical examples demonstrating that a LTFV analysis of the entire enrichment quantity at the blended price in an amended contract could result in no dumping margin while a LTFV analysis of only the additional quantity of enrichment at the discounted blended price will result in a dumping margin. The petitioners conclude that failure to employ a novel LTFV methodology will thwart the purposes of the antidumping law. Cogema/Eurodif and the Ad Hoc Utilities Group argue that the petitioners' proposed methodology for blended price contracts is inconsistent with the Department's long-established practice of setting the date of sale for long-term contracts as the final date of contracting. They also assert that the petitioners' sole reason for arguing that the Department deviate from its date of sale practice is to support the argument that quantities of enrichment sold under an existing contract should not be considered, for the purposes of the antidumping law, as covered by an amendment to that contract. Under contract law, however, the parties to an agreement can replace contractual terms with revised terms. Goods sold under a sales agreement are not irrevocably sold if the terms of sale are replaced by new ones in an amended contract. The new terms in the amended contract replace those in the original contract. Cogema/Eurodif also argue that, when applied to the two Cogema contracts amended during the POI, petitioners' proposed methodology ignores changes in material terms other than additional quantities and new prices. Moreover, specific changes in one of these Cogema amendments introduce contractual terms that cannot be accounted for by the petitioners' proposed methodology. (1) The Department's Position: We agree with Cogema/Eurodif and the Ad Hoc Utilities Group. The Department's date of sale practice captures the long- term contracts entered into during the POI and pre-POI long-term contracts when the contracts are new and when contract terms are replaced by those in an amended contract entered into during the POI. No compelling reason has been presented to the Department as to why a change of or a deviation from this practice is justified. Therefore, it is not appropriate for the Department to abandon its long-established date of sale methodology to accommodate a proposed methodology designed to calculate LTFV margins in an environment of falling prices. Moreover, the proposed methodology would require the Department to involve itself in the reconstruction of contracts and agreements in a manner that is not appropriate. In addition, the proposed methodology is based on the premise that the additional quantity of enrichment and the blended price are each the indispensable condition for the other. Our examination of Cogema's contracts at verification did not support this conclusion. At verification, we found that contracts had been renegotiated for a number of different reasons. (2) Finally, the proposed methodology is not applicable to specific terms in one of the two Cogema contracts that petitioners would subject to it. (3) Comment 5: Calculation of the LTFV margin based on delivered and undelivered sales The petitioners argue that the Department should include future deliveries related to POI sales in its LTFV calculation. They provide three reasons why the exclusion of future deliveries is improper: (1) The Act does not permit the Department to exclude undelivered sales or portions of sales from the LTFV calculation. (2) The Department must include future deliveries to calculate an accurate weighted-average LTFV margin. (3) The Department has the necessary information to make appropriate estimates for future deliveries. Section 735(a)(1) of the Act instructs the Department to determine "whether the subject merchandise is being, or is likely to be, sold in the United States at less than its fair value." The petitioners argue that the Act instructs the Department to calculate a LTFV margin based on merchandise sold, not merchandise sold and delivered. Further, the petitioners argue that there is no provision in the Act permitting the exclusion of U.S. sales. By focusing our analysis on shipments made prior to the initial questionnaire response, petitioners argue that we exclude certain undelivered sales from our margin calculation. In addition, petitioners state that section 731(1) of the Act allows the Department to impose antidumping duties if we determine that "a class or kind of foreign merchandise is being, or is likely to be, sold in the United States at less than its fair value." According to the petitioners, this section of the Act directs the Department to include future "likely" sales in the calculation. For support of this argument, the petitioners cite Certain Forged Steel Crankshafts from the United Kingdom. (4) In that case, the Department distinguished between "sales" and "shipments" and ultimately determined that "shipments" did not have to occur during the POI. In other words, as long as the shipment was made pursuant to a sale that was transacted during the POI, the Department included it in the calculation. Second, the petitioners contend that using the quantity delivered, rather than the quantity sold, as the basis for calculating the weighted-average LTFV margin skews the calculation and could allow manipulation of sales and deliveries to circumvent an antidumping order. The petitioners state that sales with no deliveries during the POI escape examination under the U.S. antidumping law. In future reviews, petitioners argue, Cogema could make both dumped and non-dumped sales during a review period, but deliver only non-dumped sales during the particular period. According to the petitioners, by adopting this strategy, Cogema could obtain a de minimis margin in a review while continuing to make dumped sales in the United States. The petitioners also argue that, in its preliminary determination, the Department overstated the difficulties of including undelivered entries in the margin calculation. According to the petitioners, product and tails assays are only used to convert SWU-based values to LEU-based values. Given that all U.S. sales are compared to constructed value, the petitioners state that if the Department uses the same product and tails assays on both sides of the equation, the exact assays are irrelevant. Therefore, using shipment averages for the product and tails assays will not result in a distortion. The petitioners further argue that the Department must routinely make estimates of future expenses in calculations. For example, the Department uses historical warranty experience as a projection of future warranty expenses and projected future payment dates for calculating imputed credit expenses. The petitioners also state that the specific estimates identified by the Department in the Preliminary Determination (exchange rates, selling expenses, and costs of production) would not be difficult to estimate. Petitioners point out that the Department can use the exchange rate prevailing on the date of the POI sale to convert all foreign currency amounts, as the Department does in all investigations. For indirect selling expenses, the petitioners contend the Department can use the indirect selling expense rate prevailing during the POI. And for direct selling expenses, the Department can use historical costs in the calculation, as the Department does for warranty expenses. Petitioners also note that Cogema provided selling expenses associated with future deliveries in its questionnaire responses. For the cost of production, petitioners suggest the Department continue to use Cogema's cost of production during the POI. The petitioners also assert that the Department can estimate future delivery quantities from the terms of the contracts or based on the nuclear reactors' reload schedules. The petitioners note that the utilities are required by law to submit estimates of deliveries under existing contracts and future needs to the U.S. Department of Energy Information Administration and that utilities' requirements for a number of years are stated in the contract. The petitioners recommend that the Department rely on the projections made by Cogema in its questionnaire responses, as those projections are probably used by Cogema to schedule production. Cogema/Eurodif argue that the statute instructs the Department to examine "sales" of "merchandise" that occurred during the POI, but the statute does not provide any guidance on how the Department should evaluate deliveries that have not occurred. Without statutory guidance, according to Cogema/Eurodif, it is up to the Department to choose a reasonable methodology. In addition, the respondent contends that the Department's normal practice is to include only deliveries that have actually occurred, as was requested in the Department's antidumping questionnaire. The respondent argues that a "fair" comparison using actual verifiable data cannot be made for deliveries that have not occurred. Furthermore, Cogema/Eurodif explain that most of the unknown variables for future deliveries are difficult to estimate. For example, for most of Cogema and Cogema Inc.'s contracts, the price of a shipment is not known until delivery, due to the presence of price escalator clauses. Nor do Cogema/Eurodif know whether the contract will be renegotiated or whether a shipment will occur, until they are notified by the customers. In addition, the quantity of future deliveries is difficult to estimate. Cogema/Eurodif note that the utilities do not always supply their nuclear reactors' reload schedules and, if they do, those schedules may change due to maintenance, renovation, or a decision to run a reactor more intensively. Also, many contracts allow the utilities to choose from a range of requirements so that it is impossible to know how much will be delivered under those contracts. Cogema/Eurodif further contend that basing expenses on historical expenses only introduces additional speculation and guesswork into the analysis. Cogema/Eurodif also argue that the petitioners fail to provide support for their contention that the Department's methodology violates the statute. According to Cogema/Eurodif, in Forged Steel Crankshafts, the Department used post-POI deliveries to calculate U.S. price, but there is no indication that the Department used future deliveries in the calculation. In fact, Cogema/Eurodif note that, in the CIT appeal of the case, the U.S. government's brief indicates that the Department only included shipments that were actually made pursuant to POI sales. The Department's Position: We agree with Cogema/Eurodif. The Department's normal practice is to examine only actual deliveries made pursuant to POI sales. As Cogema/Eurodif contends, the Act does not mandate that the Department estimate future deliveries under POI contracts, but, instead, allows the Department discretion to choose a reasonable methodology. Consistent with our decision in Forged Steel Crankshafts, in this investigation we have examined shipments that occurred after the POI, but which were pursuant to POI sales. Also consistent with Forged Steel Crankshafts, we have elected not to examine future deliveries for the reasons discussed below. As discussed in our preliminary determination, estimating future deliveries, in the context of LEU, would involve a high degree of speculation. The renegotiation of contracts is such a pervasive practice throughout the industry that the inclusion of future deliveries under such contracts is itself highly speculative in this industry. Any of the contracts entered into during the POI may be renegotiated and amended before any future deliveries occur, thus removing those deliveries from our calculation in this investigation. Furthermore, given that many of Cogema Inc.'s contracts with utilities specify a range of requirements, it is difficult to predict the needs of the utility until the utility notifies Cogema Inc. While conducting our CEP verification, we found that the utilities provide Cogema, Inc. with estimates of their future SWU requirements; however, we also found that those estimates change monthly and are not final until the utility provides Cogema, Inc. with its binding notification. (5) Moreover, we note that not all utilities provided Cogema/Eurodif with their nuclear reactor reload schedules. Even if the utilities had provided their reload schedules to Cogema, Inc., as petitioners argue, we agree with Cogema/Eurodif in that there is no guarantee that the reload schedule will not be changed due to maintenance, renovation, or more intensive reactor use. In addition, estimating the product and tails assays of future deliveries would cause further problems. Without knowing the product assay, we do not know the amount of SWU to be purchased and, thus, the price or quantity of a specific delivery. Furthermore, by estimating the product assay and tails assays, we would arbitrarily choose a constructed value for the comparison. Not only might this create a margin for the sale, it would also skew the weighted-average overall margin. We also note that, under petitioners' methodology, we would also have to estimate all expenses associated with future deliveries. In our preliminary determination, we specifically referred to estimation of exchange rates, selling expenses, and costs of production. We agree with petitioners that we use the exchange rate prevailing on the date of sale and we could use the indirect selling expense ratio from the POI. But it is unnecessary speculation to try to predict other expenses, such as movement expenses, three or four years into the future. We note that it is our practice to allow respondent to base reported warranty expenses on historical warranty expenses, but that is the exception, rather than the rule. It is not our normal practice to estimate the majority of expenses associated with a sale, much less the quantity, price, and even product characteristics of that sale. Finally, we do not believe excluding future deliveries from our analysis presents a serious risk of circumvention. As Cogema/Eurodif argues, under an antidumping duty order, covered entries would not escape review. In a review, as stated in Section 751(a)(2)(A)(i) and (ii) of the Act, the Department is directed to determine "the normal value and export price (or constructed export price) of each entry of the subject merchandise, and (ii) the dumping margin for each such entry." As a result, if, as in the scenario petitioners describe in their case brief, Cogema/Eurodif delivered non-dumped sales during a review period, and dumped sales after the review period, the dumped entries would be examined in the Department's next review of the case. No circumvention of the antidumping duty order would occur. Comment 6: Valuation of electricity as a component of LEU Petitioners claim that although the Department properly included Cogema/Eurodif's cost for electricity in calculating the cost of production for its preliminary determination, it failed to adjust those costs upward pursuant to the "major input" rule, section 773(f)(3) of the Act. Petitioners note that instead of being treated as a major input, electricity costs from an affiliated utility, EdF, were considered by the Department to be a "transaction disregarded" under section 773(f)(2) of the Act. Noting that the Department instructed Cogema/ Eurodif to report EdF's cost of production, petitioners contend that the respondent failed to act to the best of its ability to provide the electricity cost information nor did it document its efforts to obtain this data. As such, petitioners assert that the Department should draw an adverse inference in determining respondent's electricity costs for the final determination and use the electricity cost calculation petitioners provided prior to the preliminary determination. Petitioners further claim that the record does not support EdF's claim that discounts granted to Cogema/Eurodif were unaffected by the affiliation of the two entities. Although petitioners do not dispute the fact that, Eurodif, as the largest consumer of electricity in France, could be entitled to receive a substantial discount, petitioners contend that all the reported discounts should not be accepted without proof that they were market determined. In addition, petitioners question the validity of the European price quote which Cogema/Eurodif submitted to the Department as evidence that its prices for electricity reflected a market price, stating that the quoted price was for a quantity of electricity that accounted for a fraction of Eurodif's annual electricity consumption, the delivery terms are incomparable to those offered by EdF, and the offer related to a period of time subsequent to the POI. For these reasons, petitioners argue that if the Department continues to rely on the "transactions disregarded" rule in relation to Eurodif's electricity purchases from EdF, then it must adjust those purchase prices to account for the difference between the EdF rates charged to Cogema/Eurodif and those rates charged to other large industrial users. Respondent takes issue with a different aspect of the Department's treatment of electricity costs in the calculation of constructed value. Specifically, respondent argues that the Department incorrectly included a "non-existent" cost for electricity in the CV calculation. Due to the proprietary nature of the facts surrounding this issue, it is summarized in Cost Calculation Memo from Gina Lee to Neal Halper, dated December 13, 2001. Essentially, Cogema/Eurodif argues that while it did not incur any actual cost for electricity when producing LEU for certain customers, the Department ignored the unique conditions of these sales and incorrectly included the total electricity costs incurred for all LEU produced. As a result, respondent claims that the Department's margin calculation was not based on a "fair comparison." Respondent asserts that the Department instructed it to calculate reported COP and CV figures based on actual costs incurred during the POI, as recorded in their normal accounting system - Cogema/Eurodif claims that it did just that. Its cost accounting reports do not reflect all of the electricity costs, and the only reason electricity costs at issue appear in its financial accounting system is because the value added tax (VAT) regulations set by the French government require it to do so. Therefore, respondent reasons that the Department should recognize a zero electricity cost for the production of certain LEU. With respect to the petitioners' argument that the respondent did not fully cooperate during this investigation, Cogema/Eurodif contends that EdF answered all but two of the Department's questions, and because Cogema/Eurodif could not compel EdF to respond, Cogema/Eurodif has acted to the best of its ability. Cogema/Eurodif asserts that USEC was able to negotiate a significantly advantageous electricity rate with its own major unaffiliated electricity provider, which, it argues, supports its claim that the rate received by Cogema/Eurodif from EdF was not affected by the affiliation. Further, respondent notes that the European price quote which the Department verified was valid as a comparison figure because it was taken from the highest priced period of a given year and the smaller quantity of electricity is conservative because smaller volumes suggest higher prices. Petitioners disagree with respondent's argument that electricity costs for production of LEU for certain customers should be excluded from the dumping analysis. First, petitioners argue that because electricity is a component of the production process, the cost of this component constitutes a real cost of production. Second, petitioners contend that the unique business relationship between Cogema/Eurodif and EdF does not change the fact that the electricity consumed should be considered a component of cost. Third, petitioners point out that all of the electricity costs are included in respondent's audited financial statements, which are prepared from the company's financial accounting system. Petitioners explain that the Department typically relies on the financial accounting system over the cost accounting system when costs differ between them, citing Final Determination of Sales At Less Than Fair Value: Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Product from Brazil, 64 FR 38756, 38785 (July 19, 1999). Petitioners assert that while the French tax law may regulate respondent's payment of VAT on all electricity consumed, it does not require specific accounting treatment in a company's financial statements. Therefore, petitioners claim that because VAT is imposed on the consumption of all goods and services, this indicates that electricity is considered to be consumed by Cogema/Eurodif in production, regardless of how the transaction is recorded in the respondent's books and records. The Department's Position: We disagree with Cogema/Eurodif's assertion that the Department included a non-existent cost for electricity in calculating constructed value. Cogema/Eurodif's audited financial statements, prepared in accordance with French GAAP, include a cost for all electricity supplied by its affiliate EdF and consumed in the LEU production process. We used this electricity cost from the financial accounting system to calculate the weighted average cost consumed in producing LEU during the POI. Section 773(f)(1)(A) of the Act directs the Department to calculate costs based on the records of the exporter or producer if those records are kept in accordance with GAAP of the exporting country and reasonably reflect the costs associated with the production and sale of the merchandise. In this case, there is no reason to believe that the electricity costs recorded in Eurodif's normal accounting records result in a distorted per unit cost of producing LEU. We disagree with respondent's argument that because the electricity cost for certain customers is not recorded in Cogema/Eurodif's cost accounting system, these costs should be excluded from the cost of production. The Department relies on the costs recorded in the audited financial statements of a company to determine the cost of production because the audited financial statements are prepared in accordance with GAAP, while the company's cost accounting system is generally developed and maintained only for management's internal use and, in this case, does not reflect all of the costs which are included in the financial statements. Moreover, the electricity was used to produce LEU, and even if Cogema/Eurodif's financial accounting system did not include a cost for this element of production, the law requires the Department to assign a value to it. Section 773(f)(1)(A) of the Act states that the costs shall normally be calculated based on the records of the exporter or the producer if such records are kept in accordance with the GAAP of the country and reasonably reflect the costs associated with the production and sales of the merchandise under investigation. When the Department concludes that such records do not reasonably reflect the costs associated with the production and sales of the merchandise under investigation, we may have to revise the data. Section 773(b)(3)(A) of the Act states that, the cost of production shall be based on the "cost of materials and of fabrication or other processing of any kind employed in producing the foreign like product, during a period which would ordinarily permit the production of that foreign like product in the ordinary course of business..." We continue to believe that electricity is an element of the production process and as such, must be valued under the law regardless of the unique billing arrangements between Cogema/Eurodif and its affiliated electricity supplier. Regarding respondent's argument that certain products produced and sold in the home market should be excluded from the cost calculation, we disagree. In calculating the COP and CV, we compute a weighted-average cost including all quantities of that product produced during the POI. See the Antidumping Duty Questionnaire, Section D, Cost of Production and Constructed Value Questionnaire, page 1, issued February 28, 2001. We disagree with Cogema/Eurodif that the cost of electricity consumed for producing one customer's LEU should be valued differently from that consumed in producing another customer's LEU. Electricity is a fungible input used to produce all LEU. As such, it is most appropriate to calculate a single weighted-average cost for electricity consumed in producing all LEU. To do otherwise would invite manipulation. Furthermore, for purposes of this final determination, we have applied the major input rule in accordance with section 773(f)(3) of the Act in valuing the electricity received from EdF. This section of the Act allows the Department to test whether the value of major input transactions between affiliated parties is less than the affiliated supplier's COP where there is reasonable cause to believe or suspect the price of the input is below COP. Once a party to a proceeding has alleged that a respondent has sold a foreign like product at less than the COP, the Department will decide if there are reasonable grounds upon which to initiate a sales-below-cost investigation, pursuant to section 773(b)(1) of the Act. Section 773(b)(1) calls for the Department to initiate a sales-below-cost investigation if it has "reasonable grounds to believe or suspect" a respondent has sold the foreign like product at below-cost. In addition, the Department considers the decision to initiate a sales-below-cost investigation reasonable grounds to believe or suspect that major inputs to the foreign like product may also have been sold at prices below the COP within the meaning of section 773(f)(3) of the Act. See, Final Results of Antidumping Administrative Review: Silicomanganese from Brazil, 62 FR 37871 (July 15, 1997). The Department initiated a sales-below-cost investigation in this case and as discussed above, issued a cost questionnaire to the respondent. Electricity is a major input in the gaseous diffusion production process of LEU. While we did not apply the major input rule in our preliminary determination, as a result of our analyses since then, pursuant to section 773(f)(3) of the Act, because EdF and Cogema/Eurodif are affiliated and because during this investigation we had reasonable grounds to believe or suspect that the transfer price of electricity might be below the cost of production of electricity, we are applying the major input rule. The major input rule provides that the Department "may determine the value of the major input on the basis of the information available regarding such cost of production, if such cost is greater than the amount would be determined under paragraph (2){the Transactions Disregarded provision}." The Department's regulations under 19 CFR 351.407(b) provide the Department with guidance as to the information "the Secretary normally will (use to) determine the value of (the) major input." The Department is instructed by this regulation to use the higher of (1) the transfer price between the affiliated companies, (2) the market price of the major input, or (3) "the cost to the affiliated person of producing the major input." See 19 CFR 351.407(b). The Department is confident that the first two factors listed in 19 CFR 351.407(b) are present on the record of this investigation, primarily because we believe the transfer price of electricity between EdF and Eurodif also adequately reflects the market price of electricity. The Department verified that the rates charged by EdF were taken from the published Green C tariff schedule. Furthermore, we find that the rates charged by EdF to Eurodif are market based prices because they were being published on the Green C tariff schedule and EdF's rates are available to all industrial users in the market. The Department also verified that the rates charged by EdF to Eurodif were subject to three discounts from the published tariff schedule for the amount of consumption, the duration of the contract, and the usage pattern discount. Although EdF admittedly granted Eurodif discounts, these discounts are available to any industrial user who is able to qualify, under certain specified conditions. We therefore find that these discounts were not received merely as a result of an affiliation between EdF and Cogema/ Eurodif. Thus, we continue to believe that the rates charged to Eurodif by EdF are commensurate with the respondent's consumption of electricity and competitively set prices within France. See, Memorandum to Neal M. Halper from Gina K. Lee, September 14, 2001, page 17. In addition, the unaffiliated European electricity provider bid which we relied on for the preliminary determination has been deemed irrelevant to the analysis as it related to a period outside the POI. The third factor listed in 19 CFR 351.407(b) is the cost of production of the major input. The Department requested EdF's COP information in the original section D questionnaire, supplemental questionnaires, and at verification. Cogema/Eurodif claimed that it was unable to provide it. Cogema/Eurodif explained that EdF was unwilling to supply its electricity COP. The Department, therefore, attempted to apply facts available on the record. Section 776(a)(2) of the Act provides that if an interested party is unwilling or unable to provide necessary or significant information on the record, the Department may use the facts otherwise available to fill in "gaps" in the record. In choosing facts otherwise available in this case, petitioners urged the Department to apply an adverse inference. Section 776(b) of the Act notes that if the Department finds that a respondent has "failed to cooperate by not acting to the best of its ability to comply with a request for information" from the Department, the Department "may use an inference that is adverse to the interests of that party in selecting from the facts otherwise available." We believe an adverse inference in this case is not warranted. Although EdF's COP information was not provided, we believe after a review of the entire record that Cogema/ Eurodif acted to the best of its ability in responding to our requests for information. Aside from not being able to obtain its affiliated supplier's electricity cost of production, Cogema/Eurodif otherwise has complied with all of the Department's information requests and it arranged for us to meet with EdF personnel during verification. Further, we note that the nature of the affiliation between Cogema/Eurodif and EdF is distinguishable from most cases in that the affiliation is through the Government of France. The relationship between governmental entities is very different from those between for- profit affiliated entities. Although EdF and Cogema/Eurodif are related through common government ownership, the two firms operate independently. In the Department's experience, such common government ownership usually does not give one entity the power to compel another to provide information. In this case, we have no basis on the record to conclude that Cogema/Eurodif had the ability to compel EdF to supply the requested information. As such, we do not consider it appropriate to conclude that Cogema/Eurodif failed to act to the best of its ability, and thus, disagree that facts available with adverse inferences is justified. Recognizing that the major input rule is applicable in this instance, and that Cogema/Eurodif was unable to obtain EdF's COP for electricity, we attempted to calculate COP based on EdF's financial statements as non- adverse facts available. However, due to the limited amount of detail in the financial statements and elsewhere on the record, we are unable to make certain adjustments for factors that directly affect the COP for Cogema/Eurodif's electricity consumption, and thus we were unable to use EdF's financial statements to compute a reasonable COP for electricity. For example, EdF's financial statements indicate that more than half of its electricity sales were to residential customers, while Cogema/Eurodif is its single largest consumer. In addition, the bulk of EdF's customer base is located throughout France. EdF also has export sales while Cogema/Eurodif is located adjacent to the EdF electricity generating plant. As such, we believe that these facts equate to significant infrastructure, transmission, and servicing cost differences which we are unable to quantify. Thus, to ignore these differences and calculate a single average cost from EdF's financial statements would result in an inflated per-unit COP. Petitioners even recognize "that developing a cost per kWh of electricity is a more complex exercise than the simple per-unit division." See, USEC Comments for the Preliminary Determination, page 32 (June 12, 2001). Further, we continue to disagree with petitioners that the transfer prices between Eurodif and EdF should be adjusted to reflect the charges to all of the other industrial users in the market. If we were to apply its suggested figures, we believe that it would be the same as applying an adverse inference. As noted above, such an application is not warranted, given that we have determined Cogema/Eurodif acted to the best of its ability in this investigation. Finally, EdF sells electricity to all of its customers pursuant to the published tariff schedule and, overall, EdF is profitable, therefore, we believe that the rate schedule (including the transfer prices to Cogema/Eurodif) provides for above cost sales. The Department's regulations at 19 CFR 351.407(b) applies "normally" to the "information available" provision of the major input rule in section 773(f)(3) of the Act. This is not a normal case. Because we are unable, based on the facts available on the record, to calculate EdF's cost of production for electricity, as non-adverse facts available, we have limited our comparison to transfer price and market value. The purpose of examining transactions between affiliated persons is to ascertain whether those transactions were conducted at arms length. We have determined that the transfer price for electricity between EdF and Cogema/Eurodif reasonably reflects the market price for that input and represents an arms length transaction. Therefore, because the transfer prices charged to Eurodif by EdF are representative of market prices, and because the record contains no indication that the cost of production of the electricity would be higher than the transfer prices for that input, we are using the reported transfer prices for this major input as facts available in the final determination. See, Certain Cut-To-Length Carbon Steel Plate From Brazil: Final Results of Antidumping Duty Administrative Review, 63 FR 12744, 12751 (March 16, 1998). Comment 7: Whether to collapse Eurodif and Cogema for the purpose of relying on Cogema's cost of providing defluorination In their rebuttal to Petitioners' claim that Cogema's reported cost of defluorination must be adjusted, Cogema/Eurodif argue that the Department should collapse Cogema and Eurodif into a single entity. Were the Department to collapse Eurodif and Cogema in this investigation, the Department would ignore the inter-company transfer price of Cogema's defluorination services. Respondent states that the operating results of Eurodif and Cogema have been consolidated, effectively treating the companies as a single entity, and that the Department has treated a parent company and its controlled subsidiary as a single entity in other cases where only one of the companies produced the merchandise. Petitioners did not address this issue. Department's Position. Section 773(f)(2) and (3) of the Act set forth how the Department is to treat affiliated party transactions in its calculation of constructed value. With respect to major inputs from affiliate suppliers, the Department's usual practice is to value such inputs at the highest of the affiliated party's transfer price, the market price of the inputs, or the costs incurred by the affiliated supplier in producing the input. The Department has applied this interpretation since the implementation of the URAA. The only exception to this practice has been for the treatment of affiliated producers that produce the subject merchandise where the Department is concerned that there is a potential for price and production manipulation. In such cases, the Department collapses the affiliated producers and treats them as a single entity for the purpose of sales reporting and calculating a single antidumping margin. See Fresh Atlantic Salmon From Chile: Notice of Final Determination of Sales at Less Than Fair Value, 63 FR 31411 (June 9, 1998) (Comment 22), and other determinations cited in the comment. In this case, only Eurodif is a producer of the subject merchandise and we have not found it necessary or appropriate to treat Eurodif and Cogema as a single entity. Comment 8: Whether defluorination costs are at arm's length Petitioners claim that the defluorination services and the related costs included in Eurodif's COP and CV that were obtained from an affiliated supplier, Cogema, do not properly reflect a market price as required by Section 773(f)(2) of the Act. Petitioners assert that the defluorination costs, reported at their transfer price, are substantially less than they would be at the price charged by Cogema to unaffiliated customers during the POI. Petitioners argue that the market price is best measured by arm's length transactions between unaffiliated persons. They argue that the Department must upwardly adjust Eurodif's reported defluorination costs to reflect the market price. Respondent disagrees with petitioners' argument that the affiliated defluorination costs do not reflect a market price and should be adjusted. Eurodif first claims that the Department has access to information that supports its claim that the defluorination services purchased from the unaffiliated party are not comparable to the services purchased from Eurodif's affiliated party. Eurodif holds that the storage cylinders are not the same and require different processing and also that the lower volumes caused the prices to be higher. Secondly, Eurodif claims that the Department should collapse Cogema and Eurodif and use Cogema's cost of production for valuing the defluorination costs in question. Petitioners reject respondent's argument that the unaffiliated transactions are invalid as a market price because of the smaller quantity and different type of canister used. Petitioners argue that the Department cannot accept these reasons because respondent has failed to provide adequate information to support them and, therefore, the Department should adjust the defluorination costs to reflect the price of the unaffiliated transactions. The Department's Position: We disagree with petitioners' argument that Eurodif's defluorination costs should be adjusted to reflect the referenced unaffiliated sale price. We analyzed the transactions pursuant to section 773(f)(2) of the Act. In the preliminary determination, we deemed Eurodif's defluorination purchases from Cogema to have been made at arm's-length prices as their average transfer price was higher than Cogema's average cost of production. We have determined that the unaffiliated sale to which petitioners refer is incomparable and not an appropriate measure of the market price as it was shipped in cylinders different from the cylinders which Eurodif normally uses. The different cylinders used by the unaffiliated customer are not as compatible with Cogema's facility, thus making it more difficult for Cogema to process. In addition, the unaffiliated customer imposed restrictions on the amount of depleted material allowed in the containers. Both of these factors made it more costly for Cogema to process the unaffiliated company's tails. As a result, Cogema charged the unaffiliated customer higher prices than it charged to Eurodif. We maintain that such unique terms disqualify these sales from being considered for the purposes of determining a comparative market price. We have not collapsed Cogema and Eurodif as discussed in Comment 7, above, and therefore we have not used the cost of production of the transactions from the collapsed entity in our analysis. Since we found no comparative unaffiliated sales to use as a market price for comparison to the transfer price, we used the cost of Cogema's defluorination service as a surrogate for a market price. We found that the transfer price was above Cogema's cost of the defluorination service and have therefore used the transfer price for the final determination. Comment 9: Accrual for tails disposal Petitioners assert that the Department should correct Eurodif's reported defluorination costs to ensure that all of the expenses related to tails disposal have been included appropriately. Petitioners note that in accrual accounting, the tails disposal costs should be recognized as an expense incurred at the time of production of the LEU. However, USEC contends that Eurodif has not done so because it included a reversal to the defluorination reserve from a prior period in its reported costs. Although petitioners recognize that respondent has reported this expense in accordance with what is in its normal financial records, petitioners point out that this particular item is not consistent with GAAP, which requires expenses to be matched with corresponding revenues. Petitioners argue that, in this case, the Department should ignore the expenses and accruals as recorded in Eurodif's books and should instead recalculate a proper expense amount for those tails produced in the POI. Respondent argues that the Department had requested it to calculate its COP and CV based on its normal accounting records. See, antidumping duty questionnaire, section D cost of production and constructed value questionnaire, page 1, item I.C. issued February 28, 2001. Respondent claims, therefore, that the Department should continue to include defluorination and decommissioning expenses as recorded in its books and records. However, respondent additionally points out that petitioners' analysis is flawed as it does not recognize that Eurodif's CV is conservative because it includes more defluorination costs than there were tails produced during the POI. Therefore, respondent asserts that if the Department were to accept petitioners' arguments, the Department would also have to reduce Eurodif's disposal costs for the POI for those tails produced prior to the POI. The Department's Position: We agree with petitioners that Eurodif's reported tails disposal costs appear to be understated. According to the respondent, Eurodif employs a particular method of recording tails disposal transactions. Rather than recording the accrual for disposal of tails generated during the period, and reducing the balance sheet tails disposal liability for the actual cash paid for disposition of tails, Eurodif claims that it records the actual cost associated with the tails disposed of during the period on its income statement. In addition, Eurodif calculates the ending balance of the tails disposal liability by multiplying the ending quantity of tails on hand by the per-unit tails disposal provision, and recognizes as "adjustment to reserve" on the income statement the difference between the beginning and ending liability for tails disposal. In effect, under this method, the net tails disposal costs reported on the income statement should reflect the actual cost associated with disposing of the tails generated during the period plus the difference between the accrual and actual disposition costs for tails generated in prior years but disposed of in the current year. In analyzing the reported costs associated with tails disposal, however, the amounts reported do not appear to reflect what respondent is claiming. The CV calculation should include the tails disposal costs associated with the tails generated during the POI. Neither petitioners nor respondent disputes the quantity of tails which were generated during the POI. In addition, as was noted above, Eurodif paid a certain transfer price for defluorination of tails during the POI. The multiplied value of these two amounts reflects the tails disposal costs which should be included in the CV calculation. For the final determination, we excluded the reported amounts and included, instead, the recalculated amount. See the proprietary cost calculation memo from Gina Lee to Neal Halper dated December 13, 2001 for a detailed explanation of our adjustment for the defluorination expenses. We continued to include the defluorination provision included in decommissioning because this amount relates to decommissioning costs, not the tails disposal costs at issue. Comment 10: Calculation of a CEP offset At the preliminary determination, we found that respondent had performed the same types of selling activities in the U.S. and home markets. Different degrees of the activities were characterized as "low," "medium" or "high," and the distinctions between the terms, with respect to the selling activities, had not been explained. The Department concluded that it did not have a basis for concluding whether a CEP offset to NV was appropriate and undertook to examine the issue further at verification. See Preliminary Determination, 66 FR 36,746. At verification, respondent was able to compare and contrast the selling activities that Eurodif performed for shareholder customers, that Cogema performed for third-market customers, and that Cogema, Inc., performed in the U.S. market. The Department is satisfied that the differences in the degree of selling activities undertaken for different categories of customers was fully explained. (6) In its case brief, Cogema/Eurodif argued - for the first time - that it was entitled to a CEP offset. Respondent argues that the record demonstrates that Cogema, Inc., and UG, USA Inc., perform selling functions in the United States that either Eurodif, Cogema, or UG perform in the home market and third markets and that, had Cogema, Inc., or UG USA, Inc., not performed the selling activities in the U.S. market, Eurodif would have had to find some other means for accomplishing those activities in the U.S. market. The petitioners argue that Cogema/Eurodif has not demonstrated that its NV transactions are at a more advanced level of trade than the CEP transactions in the U.S. market because nearly all of Eurodif's home market sales are made to a single customer while there is a higher level of marketing and customer interaction necessary in the United States. Department's Position: For CEP sales, we considered only the selling activities reflected in the price after the deduction of expenses and profit pursuant to section 772(d) of the Act. After we deducted the expenses and profit covered in section 772(d) of the Act, we had removed virtually all of the activities of Cogema, Inc. In the home market, Eurodif is, among other activities, conducting contract negotiations, forecasting and scheduling production, coordinating deliveries, complying with regulations, and collecting payments. As a consequence, we have determined that the NV level of trade is more remote from Eurodif's enrichment facility than Cogema Inc.'s U.S. sales, as adjusted. However, as there is only one level of trade in the home market, we are unable to determine whether differences in the level of trade would have affected price comparability between the CEP and the NV. As a result, we are granting a CEP offset pursuant to section 773(a)(7)(B) of the Act. Comment 11: Recalculation of inventory carrying costs The petitioners argue that Cogema failed to report inventory carrying costs from the time the subject merchandise first arrived in the United States until the time that there was a book transfer of the merchandise at the U.S. fabricator. The petitioners request that the Department adjust the U.S. inventory carrying cost expense and deduct this expense from the CEP. The respondent argues that all of the relevant inventories were reported to the Department and that the Department verified the month-end inventory amounts for the POI. The Department's Position: We agree with the respondent. The inventories were reported to the Department in a supplemental response to the Department's antidumping questionnaire and verified by the Department. (7) Although the inventory carrying cost was incurred while the LEU was in the United States, it was incurred by Cogema/Eurodif, not by Cogema, Inc. Cogema Inc.'s prices have been adjusted for the inventory carrying costs. Comment 12: Imputing certain expenses to Cogema/Eurodif The petitioners argue that the Department should adjust the reported U.S. prices for certain contracts to account for contracted-for opportunity costs to respondent. (8) The respondent states that the alleged opportunity costs identified by the petitioners relate to merchandise transferred from respondent's inventories at U.S. fabricators. Respondent argues that any such costs were captured in their inventory carrying costs that were reported to the Department. The Department's Position. We agree with the petitioners. In our view, the contract provisions referred to, if exercised, create an opportunity cost. We made an adjustment to indirect selling expenses to reflect that cost. (9) Comment 13: SG&A expenses Respondent contests the Department's inclusion in G&A of research and development ("R&D") expenses incurred by Cogema for centrifugal studies. Eurodif claims that it has no rights to the results from the study. Referring to Dynamic Random Access Memory Semiconductors of One Megabit and Above from the Republic of Korea, 58 FR 15,467, 15,472 (final determination) ("DRAMS"), respondent argues that the Department must focus on whether the R&D expense provides an "intrinsic benefit" to the production of subject merchandise. Without providing such an "intrinsic benefit," respondent claims that the costs for the study should be excluded from COP and CV. However, respondent asserts that if the Department was to include costs related to the study, it should only include the portions related to Eurodif which were expensed in the POI. Petitioners argue that the R&D expenses related to the centrifugal studies should be included in Eurodif's COP and CV. Petitioners question the logic of respondent's argument that the R&D costs do not relate to the subject merchandise and thus should be excluded from COP and CV. Petitioners assert that the studies relate to production of LEU, which is the merchandise under investigation. In addition, petitioners refer to the DRAMS case where the Department determined that "cross-fertilization" of R&D is commonplace, the theory being that advances in one particular field often lead to advances in closely related fields. Therefore, petitioners contend that the entire cost of the studies should be included in Eurodif's COP and CV. The Department's Position: We disagree with respondent. The studies performed for Cogema and Eurodif related to the centrifuge production process. The centrifuge process is one option used to produce LEU. Eurodif currently uses another option, the gaseous diffusion process, in producing LEU. However, the centrifuge process is a newer, more efficient process than the gaseous diffusion process, which allows for plant capacity expansion on a modular basis. This means that the producer can adjust its capacity to meet market demand. The most advanced technology can then be installed in each new incremental module, which is an important advantage. Most importantly, the centrifuge process consumes much less electricity than gaseous diffusion (10). It would be only logical for the respondent to incur R&D expenses in order to implement this newer and better method. Because the two processes are simply different ways of producing the same product, the studies can reasonably be assumed to provide collateral benefits for the product within scope. This is similar to the situation in the Final Determination of Sales at Less Than Fair Value: Oil Country Tubular Goods From Argentina, 60 FR 33539, 33549 (June 28, 1995)(Comment 10). Additionally, regardless of the enrichment processed used, these R&D expenses were incurred to produce LEU, the product under investigation. See Petition for the Imposition of Antidumping and Countervailing Duties on Low Enriched Uranium from France, Germany, the Netherlands and the United Kingdom, Volume I, at I-4 (December 7, 2000). Furthermore, consistent with our finding in DRAMS, we believe that both the portions incurred by Eurodif and by Cogema are applicable to Eurodif's COP and CV as the studies in total relate to the general operations of the company and provide an intrinsic benefit to an enricher. Because the ultimate goal of the studies was to increase and/or improve production of LEU, the costs and benefits of the research are both related to the merchandise under investigation. As a result of all of these considerations, we have determined that the studies are applicable to and should be included in the COP and CV. Therefore, we have included the relevant R&D expenses in total, as reported in Cogema/Eurodif's books and records for fiscal year 2000, in Eurodif's G&A rate calculation. See, Memorandum from Gina K. Lee to Neal M. Halper, December 13, 2001. Comment 14: Financial expenses Respondent contends that the Department erroneously calculated its financial expense rate for the preliminary determination based on CEA Industrie's ("CEA") financial statements instead of Cogema's consolidated financial statements. Respondent claims that the Department is required to base costs on the actual amounts incurred and realized by the exporter or producer. Eurodif argues that in AIMCOR vs. United States, 69 F. Supp. 2d 1345, 1353 (Ct. Int'l Trade 1999)("AIMCOR"), the court rejected the Department's approach to base financial expenses on those expenses incurred by the entity at the respondent's highest level of consolidation. Furthermore, respondent alleges that CEA does not borrow on behalf of respondent. Petitioners refute Eurodif's argument about its financial rate calculation. Petitioners assert that the Department is justified in basing respondent's financial rate on the entity at its highest level of consolidation. Petitioners assert that doing so recognizes that CEA, as the parent company, has control over the financial operations of all of its subsidiaries and that all of its subsidiaries benefit from the loans taken out and other financial benefits conferred by CEA through the overall capital structure of the organization. Petitioners explain that the Department's longstanding practice to calculate financial expenses for COP and CV based on the highest level of consolidation has been upheld by the CIT in numerous cases. Petitioners contend that even in the AIMCOR case, the court stated that "Commerce is justified in using consolidated financial statements when corporate control, whether direct, or indirect, exists." The Department's Position: As explained below, we disagree with respondent that the Department erred in its preliminary determination in calculating Eurodif's financial expense rate based on the highest level of consolidated financial statements in which Eurodif is included. Section 773(b)(3)(B) of the Act states that for purposes of calculating cost of production, the Department shall include "an amount for selling, general, and administrative expenses based on the actual data pertaining to the production and sales of the foreign like product by the exporter in question." Section 773(e)(2)(A) of the Act states that for purposes of calculating CV the Department shall include "the actual amounts incurred and realized by the specific exporter or producer being examined in the investigation or review for selling, general, and administrative expenses..." Finally, section 773(f)(1)(A) of the Act states that "[c]osts shall normally be calculated based on the records of the exporter or producer of the merchandise, if such records are kept in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with production and sale of the merchandise." The Department's long-standing policy of calculating financial expenses for COP and CV purposes based on the borrowing costs at the consolidated group level is in accordance with the provisions set forth in the Act and most accurately reflects the "actual" cost of financing to the respondent. The Department's policy recognizes the fungible nature of money within a consolidated group of companies and that the controlling entity within a consolidated group has the power to determine the capital structure and financial costs of each member within the group. Companies finance operations through various forms of debt transactions, stock transactions, cost sharing and reimbursement schemes, and even corporate operating transactions. These financing activities are conducted both with internal and external parties. In such circumstances, the controlling management of the group coordinates these activities in order to maximize the benefit to the group as a whole. A few examples of these types of activities include, but are not limited to: debt moved to specific companies in order to shield assets in other companies from creditors; monies moved through manipulated transfer prices to avoid tax liabilities or currency restrictions; sharing or undertaking strategic costs such as research and development; or conversions of debt into equities (or vice versa) to present a group member in a more favorable financial position. The important point here is that the corporate control on the financing operations of individual group member companies may exist even in the apparent absence of specific inter-company financing transactions. The CIT has upheld the Department's practice of relying on consolidated financial statements when corporate control, whether direct or indirect, exists. See, E.I. DuPont de Nemours & Co. v. United States, (DuPont) Slip Op. 98-7 (CIT 1998). It is the Department's position that majority equity ownership is prima facie evidence of corporate control. See, e.g., Final Determination of Sales at Less Than Fair Value: New Minivans from Japan (Minivans), 57 FR 21946 (May 26, 1992). In Minivans, the Department determined that, as a member of a consolidated group of companies, the operations of a company remain under the controlling influence of the group. Like other members of the consolidated group, a company's capital structure is determined largely within the group. Consequently, its interest income and expenses are as much a part of the group's overall borrowing experience as any other member of the group. See, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Small Diameter Circular Seamless Carbon and Alloy Steel, Standard, Line and Pressure Pipe from Italy (Pipe From Italy), 60 FR 31981 (June 19, 1995). Moreover, the Department's policy of deriving financing costs based on the borrowing experience of the consolidated group of companies is consistent with U.S. GAAP and International Accounting Standards. The language found in the U.S. GAAP Accounting and Research Bulletin No. 51 (ARB 51) and Statement of Financial Accounting Standard 94 (FAS 94) require, except in narrowly defined circumstances, that all investments in which a parent company has a controlling financial interest, represented by the direct or indirect ownership, be consolidated. FAS 94 also states: There is a presumption that consolidated statements are more meaningful than separate statements and that they are usually necessary for a fair presentation when one of the companies in the group directly or indirectly has a controlling financial interest in the other companies. FAS ¶ 1. In the instant case, the record establishes that the entity controlling the consolidated group is a majority owner of Eurodif, specifically through stock ownership. In fact, the financial statements state that only those companies over which CEA has "exclusive control" are fully consolidated. See, CEA 1999 Audited Annual Financial Statements at page 35. Cogema is listed as a fully consolidated company with CEA owning approximately 75 percent interest in the group. See, id, page 51. As such, it is reasonable for the Department to rely on the financial statements of the consolidated group at the top level to determine Eurodif's "actual" financing expenses because Eurodif's financial expenses, as well as all other group companies' financing expenses, are in fact reflected in the financing expenses on the financial statements of the highest level consolidated group. The respondent cites AIMCOR as support for its argument that the Department may not rely on financial statements at the highest level of consolidation where there is no record evidence of inter-company borrowing or other indicia establishing that those consolidated financial statements accurately reflect the true costs to the specific exporter at issue. However, in AIMCOR, the CIT stated that "Commerce is justified in utilizing consolidated financial statements when corporate control, whether direct or indirect, exists..." AIMCOR, 69 F. Supp. 2d at 1354. In that case, the CIT stated that "Commerce is statutorily mandated to utilize the ratio which will more accurately reflect actual costs incurred -- especially ... where there was no record evidence on inter-company borrowings or other indicia that the respondent's parent company determined the respondent's cost of money." Although we have explained why we do not believe that this is necessary where a parent company exercises considerable control over its group, in the instant proceeding there is clear record evidence of other indicia of CEA having such influence over Cogema's financial activities which demonstrates the fungible nature of funds in this group. One relationship is that CEA and Cogema assumed joint control of Framatome, a company involved in building nuclear reactors and facilities, in an effort to restructure the French nuclear industry, an activity where CEA is contributing funds that benefit COGEMA. In addition, CEA and Cogema jointly participate in R&D studies. Also, Cogema participated in CEA's consolidated tax plan from which it is able to receive certain benefit effects. See, CEA 1999 Audited Annual Financial Statements at pages 5, 25, and 81. These relationships prove that Cogema and CEA have intertwined financial relationships with each other. Because of these and other business relationships within the group, the parent company exerts influence over the use of funds within its consolidated subsidiaries and those funds are clearly fungible. Therefore, for all of the reasons stated, we have calculated Eurodif's interest expense rate based on the CEA consolidated financial statements. Comment 15: Purchased product Cogema/Eurodif argues that if the Department were to exclude purchased product from the weighted-average CV calculation, it would be abandoning its practice of including all of the costs of production that are included in the respondent's books and records. Respondent contends that in Certain Pasta From Italy, 65 FR 7349, 7356 (February 14, 2000) the Department found that, in order to exclude the cost of a commingled product, the respondent needs to be able to separately identify the purchased material for sales purposes. The petitioners did not comment on this issue. The Department's Position: We disagree with respondent. The costs at issue do not pertain to the subject merchandise. Moreover, as Eurodif produces the great majority of its finished product, LEU, its own cost of production is highly representative of the production cost of the merchandise under investigation. Therefore, for our final determination, we have excluded the purchased product from the weighted-average COP and CV calculations. Comment 16: CV profit Cogema/Eurodif argue that the Department should not have calculated profit for its CV based on CEA's financial statements. Respondent asserts that the Department must base the profit rate calculation on financial statements that are company-specific and for home market sales that are in "the same general category" as the subject merchandise. Respondent claims that CEA does not fit either of these requirements as it is comprised of many companies which are not engaged in enrichment services. Therefore, respondent argues that the Department should base the profit rate on Eurodif's financial statements, as they relate to sales of merchandise in the same "general category" and are company-specific. Petitioners argue that the Department should continue to calculate Eurodif's CV profit based on CEA's financial statements. Petitioners contend that in Eurodif's situation, most of its sales are to affiliated parties which do not represent sales in the "course of ordinary trade." Therefore, according to the statute, the Department should use a reasonable method in calculating profit and did so accordingly for the preliminary determination. The Department's Position: We disagree with respondent. Eurodif does not have a viable comparison market. Therefore, the Department has not determined the CV profit under section 773(e)(2)(A) of the Act, which requires sales by the respondent to be made in the ordinary course of trade as the basis of the profit calculation. In situations where we cannot calculate CV profit under section 773(e)(2)(A), section 773(e)(2)(B) of the Act sets forth three alternatives. The Statement of Administrative Action, at 840 (H.R. Doc. 103-316 (1994)), states that "section 773(e)(2)(B) does not establish a hierarchy or preference among these alternative methods." Section 773(e)(2)(B)(i) specifies that profit may be calculated based on "actual amounts incurred by the specific exporter or producer on merchandise in the same general category" as subject merchandise. However, Eurodif does not produce any other products in the same general category aside from what is under investigation. Alternative (ii) of this section provides that profit may be calculated based on "the weighted average of the actual amounts incurred and realized by {other} exporters or producers that are subject to the investigation." However, because Eurodif and Cogema are the only respondents in this case, the Department cannot calculate profit based on alternative (ii) of this section. Thus, we must calculate CV profit for Eurodif under section 773(e)(2)(B)(iii) ("alternative (iii)"). Pursuant to alternative (iii), the Department has the option of using any reasonable method, as long as the result is not greater than the amount realized by exporters or producers "in connection with the sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise," the so-called "profit cap." The profit cap cannot be calculated in the instant case because, as we noted above, we do not have information allowing us to calculate the amount normally realized by exporters or producers (other than respondent) in connection with the sale, for consumption in the foreign country, of the merchandise in the same general category. Therefore, we are applying option (iii), without quantifying a profit cap. To determine the most appropriate profit rate under alternative (iii), the Department has weighed several factors in the instant case. Among them are: (1) the similarity of the potential surrogate company's business operations and products to the respondents'; (2) the extent to which the financial data of the surrogate company reflects sales in the United States as well as the home market; and (3) the contemporaneity of the surrogate data to the POI. The greater the similarity in business operations and products, the more likely that there is a greater correlation in the profit experience of the two companies. Concerning the extent to which U.S. sales are reflected in the surrogate's financial statements, because the Department is typically comparing U.S. sales to a normal value from the home market or third country, it does not want to construct a normal value based on financial data that contains exclusively or predominantly U.S. sales. Further, in accordance with section 773(e)(2)(B) generally, we seek home market profit experience to the extent possible. Finally, contemporaneity is a concern because markets change over time and the more current the data, the more reflective it would be of the market in which the respondent is operating. Of the information on the record, CEA's financial statements offer the best option for calculating a surrogate profit. "CEA and its subsidiaries are involved in the various stages of the nuclear fuel cycle." About half of CEA's sales appear to be home market sales and the rest appear to be export sales. See, CEA Industries Annual Report, Supplemental A, May 30, 2001, exhibit SA-66, pages 2 and 46. As to contemporaneity, the Department has on the record CEA's 1999 fiscal year income statements, which are contemporaneous with the POI. Based on this analysis, and consistent with Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Pure Magnesium from Israel, 66 FR 49349 (September 27, 2001) ("Magnesium"), we have applied a CV profit rate which was calculated based on CEA's fiscal year 1999 income statement for the final determination. CEA had significant home market sales, is in a business similar to Eurodif's, and the data is contemporaneous. Agree ______ Disagree ______ __________________ Faryar Shirzad Assistant Secretary for Import Administration _________________ Date ___________________________________________________________________________ footnotes: 1. For example, although the petitioners' concerns are focused of contracts being amended to increase the quantities sold at blended prices, one amendment lowers the quantity terms for certain periods during the length of the amended contract. See Transcript of the October 23, 2001 Public Hearing, pages 53-54. 2. See Verification of Constructed Price Data at Cogema, Inc. (Bethesda, MD), dated September 10, 2001(CEP Verification Report), at 8. Independently, the U.S. International Trade Commission noted in its preliminary determination in these antidumping and countervailing duty investigations of low enriched uranium that: "USEC claims that bid values from different sources are not comparable as its reported prices are 'evaluated' prices which are adjusted for discounts on pre-existing supply commitments, price escalation terms, extended payment terms, converted uranium supply lead time, variable tails assay options, and packaging and handling terms .... Utilities Group respondents indicate that utilities 'evaluated price' is based on a broad range of subjective decision factors ... and that it would be quite normal for two utilities evaluating the same competing bids to arrive at completely different evaluated prices for each and consequently award the contract to different suppliers." See Low Enriched Uranium from France, Germany, the Netherlands, and the United Kingdom , Inv. No. 701-TA-409-412 (Preliminary) and 731-TA-909-912 (Preliminary), USITC Pub. 3388 (January 2001), at V-7, note 12. 3. See note 3, above. 4. Final Determination of Sales at Less than Fair Value: Forged Steel Crankshafts from the United Kingdom, 52 FR 32951 (September 1, 1987). 5. See CEP Verification Report, at 5. 6. See CEP Verification Report, at 4-5. 7. See CEP Verification Report and verification exhibit VE-10. 8. The identity of the contracts and the specific contract provisions are proprietary information. For a detailed discussion of this issue, please see the Calculation Memorandum, dated December 13, 2001. 9. See Calculation Memorandum, dated December 13, 2001. 10. Uranium Enrichment by Gas Centrifuge, Urenco, page 6.