67 FR 35474, May 20, 2002 A-583-837 POI: 04/01/00-03/31/01 Public Document G2/O4: RMT May 6, 2002 MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Bernard T. Carreau Deputy Assistant Secretary for Import Administration, Group II SUBJECT: Issues and Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Polyethylene Terephthalate Film, Sheet, and Strip (PET film) from Taiwan Summary We have analyzed the comments and rebuttal comments of interested parties in the antidumping duty investigation of PET film from Taiwan for the period April 1, 2000 through March 31, 2001. As a result of our analysis, we have made changes in the preliminary margin calculations. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this memorandum for this final determination. Background On December 21, 2001, the Department of Commerce (the Department) published the preliminary determination of the antidumping duty investigation of PET film from Taiwan. See Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Polyethylene Terephthalate Film, Sheet and Strip (PET Film) From Taiwan, 66 FR 65889 (December 21, 2001) (Preliminary Determination). The period of investigation (POI) is April 1, 2000, through March 31, 2001. The investigation covers two manufacturers/exporters, Nan Ya Plastics Corporation, Ltd. (Nan Ya), and Shinkong Synthetic Fibers Corporation (Shinkong). The petitioners in this investigation are Dupont Teijin Films, Mitsubishi Polyester Film of America, and Toray Plastics (America) (collectively, the petitioners). We conducted verification of the questionnaire responses of Nan Ya during the weeks of January 28, 2002 and February 8, 2002, and Shinkong during the weeks of February 25, 2002 and March 4, 2002. We gave interested parties an opportunity to comment on our preliminary determination. On April 8, 2002, Shinkong and the petitioners, submitted case briefs. On April 12, 2001, Shinkong and the petitioners submitted rebuttal briefs. On April 16, 2002, Nan Ya submitted its rebuttal brief. The Department received requests for a public hearing from both petitioners and Shinkong. A public hearing was held on April 17, 2002. List of Issues Below is the complete list of issues in this investigation for which we received comments and rebuttal comments from parties: 1. Nan Ya's Yield Ratios 2. Nan Ya's PET Film Productivity 3. Nan Ya's Product-Specific Costs 4. Nan Ya's Relationship With U.S. Customers 5. Nan Ya's Recycled Packing Costs 6. Nan Ya's Sales Quantities 7. Shinkong's Home Market Sales Made to Port 8. Shinkong's Packing Costs 9. Shinkong's Certified Public Accountant (CPA) adjustments Discussion of the Issues Comment 1: Nan Ya's Yield Ratios The petitioners argue that the Department should apply adverse facts available (AFA) to value Nan Ya's cost of production (COP) for the final determination because Nan Ya's yield ratios are fundamentally flawed. Specifically, the petitioners claim that Nan Ya has reported that for several control numbers (CONNUMs), it produces more saleable PET film than the amount of PET film that it takes from its production lines to produce this film. See Petitioners' Case Brief, at Exhibit 2. The petitioners assert that is not possible for Nan Ya to produce more than one kilogram of saleable film for each kilogram of master roll film that Nan Ya uses to produce this film. In rebuttal, Nan Ya states that it reported in its section A and D questionnaire responses that it tracks production costs through four separate cost centers: (1) the PET chip product stage; (2) the PET film stretching stage; (3) the PET film slitting stage; and (4) the PET film packing stage. Nan Ya points out that as is standard for most production systems, Nan Ya's normal production process involves a certain amount of work-in-process (WIP) material that is accounted for at the beginning and end of each separate production stage. According to Nan Ya, the output of the starting stage would include WIP that was in inventory and was produced in the prior stage in a prior period. Thus, the output of the stretching stage naturally would not be equal to the output of the slitting stage over the same periods because of the considerable amount of WIP in each stage at the beginning of production. Nan Ya contends that the petitioners ignore this fact in making their assertion that Nan Ya produces more saleable PET film than the same unit amount of material contained on the master roll used to produce it. According to Nan Ya, the petitioners presume, without foundation, that each stage's output should match another, and then make an absurd conclusion based on this faulty presumption. Nan Ya claims that the petitioners have manipulated Nan Ya's reported cost figures in an effort to discredit the company's cost reporting methodology. Department's Position: We disagree with the petitioners that Nan Ya's data suggest the company produced more saleable film than the amount of PET film it takes from the production lines to produce this film. In their analysis, the petitioners compared Nan Ya's data reported in its constructed value (CV) and COP databases to the data in cost verification Exhibit 26 containing production quantities by film type. See Petitioners' Case Brief at 3. We note that we obtained this exhibit only to analyze production output per minute of different types of film, not to calculate total production quantities. We used cost verification Exhibit 30 to verify and calculate total production quantities which reconciled with NanYa's reported CV and COP databases. See Verification of the Cost of Production and Constructed Value Data Submitted by Nan Ya Plastics Corporation Ltd. (March 13, 2002) at Exhibit 26 and Exhibit 30 (Nan Ya's Cost Verification Report). Based on our analysis and contrary to the petitioners' contention, we did not find that Nan Ya's yield ratios were flawed. Therefore, for these final results, we have used Nan Ya's reported yield ratios. Comment 2: Nan Ya's PET film Productivity The petitioners argue that the Department should apply AFA for the final determination because the productivity data provided by Nan Ya are unreliable. According to the petitioners, Nan Ya's reported productivity is unbelievably constant over a wide range of production runs, grade, thickness and time. The petitioners state that many variables affect PET film productivity over the course of a year. For example, long production runs of a single product generally result in higher productivity. The longer the production run the fewer interruptions in the process. But, the petitioners claim that Nan Ya's data suggest that the length of the production run is irrelevant to productivity. Another variable affecting productivity is processing flaws, including the "accidental stops and breakdowns" that Nan Ya described during verification. As a result of these "downtimes," the petitioners claim, it is practically impossible for productivity to remain constant over the course of a year for a wide range of models. In addition, the petitioners contend that it is widely accepted among PET film producers that the thickness of film affects the processing rate. However, the petitioners claim that Nan Ya's data does not indicate that the thickness of film has an effect on the processing rate. The petitioners state that while Nan Ya admits that thickness and "downtimes" affect productivity, it also seems to suggest these two variables exactly cancel each other out, so that thickness remains a constant in PET film productivity. See Nan Ya's Cost Verification Report at 17. According to the petitioners, it is simply not possible that increased downtimes associated with thicker films exactly cancel out any productivity efficiencies associated with the manufacture of the thicker PET film. Further, the petitioners assert that time is lost in changing from one master roll to the next. The petitioners maintain that because of differences in changeovers, it is practically impossible for productivity to remain constant for many models of PET film over the course of a year. Finally, the petitioners claim that the productivity of a PET film production line can vary over the course of a year as a result of changes in operations. According to the petitioners, while Nan Ya's data indicate that its operational conditions remained exactly the same over the POI, the overwhelming evidence suggests this is simply not possible. In rebuttal, Nan Ya rejects the petitioners' claims that Nan Ya is unable to maintain constant productivity over a wide range of PET film models (i.e., thickness). Nan Ya contends that by utilizing its specialized production process it is able to achieve efficiency gains that standardize PET film productivity regardless of product thicknesses. Therefore, Nan Ya maintains that the data it provided is reliable. Department's Position: We disagree with the petitioners that the productivity data provided by Nan Ya are unreliable. At verification, we were able to trace the reported POI production output and production times at the various production stages to Nan Ya's actual production records. Therefore, based on our findings at verification, we believe that Nan Ya's reported productivity data are reliable. However, as discussed below, Nan Ya did not use this productivity data to provide product-specific costs based on thickness. Comment 3: Nan Ya's Product-Specific Costs The petitioners argue that Nan Ya's data demonstrate that production costs depend on thickness. During verification, Nan Ya provided the Department with a graph that purportedly demonstrates that productivity remains fairly constant over the range of thicknesses of PET film. According to the petitioners, even if the Department were to accept the fundamentally-flawed data upon which this graph is based, the graph itself is presented in such a way that the relationship between thickness and productivity is significantly distorted. The petitioners claim that after correcting for these distortions, it becomes clear that productivity tends to significantly increase as film thickness increases and this is borne out even using Nan Ya's own data. See Petitioners' Case Brief, Exhibit 6. According to the petitioners, other PET film producers agree that film thickness affects production costs. See Petitioners Case Brief, at 8, Exhibit 4 and Exhibit 5. For example, Shinkong reports that thickness significantly affects both cost and sales price. Moreover, the petitioners assert that Nan Ya has provided no information in this investigation to suggest that its production processes differ significantly from the processes of other PET film producers in Taiwan. The petitioners contend that the Department must apply AFA to determine Nan Ya's COP data. According to the petitioners, Nan Ya's cost data are fatally flawed and unreliable and the records show that Nan Ya cannot support its assertion that film thickness is irrelevant to its cost or justify its refusal to provide the cost data requested by the Department. The petitioners argue that the Department explained the requirement to provide product-specific data to Nan Ya just two years ago. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Polyester Staple Fiber From Taiwan, 65 FR 16877 (March 30, 2000) and accompanying Issues and Decision Memorandum at Comment 31 (Polyester Staple Fiber). According to the petitioners Nan Ya should know that any purported limitation in its cost accounting system does not justify a failure to report requested product-specific costs. The petitioners contend that based on its recent experience in Polyester Staple Fiber, Nan Ya should know that (1) the Department requires product-specific costs by CONNUM and (2) purported limitations in a firm's cost accounting system do not excuse the failure to provide product-specific costs. Thus, the petitioners maintain that because Nan Ya has failed to provide product-specific cost information, the Department should apply AFA in this investigation. In rebuttal, Nan Ya claims that its cost allocation system is reasonable and supported by evidence on the record. Nan Ya states that it allocated costs over production quantity and argues that under its production system, using processing time as an allocation base would have led to distortion. According to Nan Ya, only an allocation based upon quantity leads to an accurate allocation. Nan Ya contends that it has supported with record evidence the fact that there is "no direct correlation between production output and thickness of the product." See Nan Ya's Cost Verification Report at 19. According to Nan Ya, the Department examined this at verification and found no discrepancies. Id. For this reason, Nan Ya alleges that under its system, processing time does not lead to a more accurate allocation base. Nan Ya alleges that the petitioners have cited no valid evidence to support their claim of a correlation between production output and thickness, instead, they merely assert the presumption that the thicker the film, the greater the processing rate. Moreover, Nan Ya states that the petitioners fail to appreciate that even if the processing rate was correlated and increased with thickness so would the production quantity. Thus, Nan Ya claims that its cost allocation system, which allocates over quantity, would be accurate even under the petitioners' flawed assumption, because quantity would reflect any alleged production rate increase due to thickness. According to Nan Ya, it has properly reported its product-specific COP consistent with its accounting system. Nan Ya states that it has explained its methodology in its Section D questionnaire response, and it has provided additional details on this issue in its response to the Department's supplemental Section D questionnaire. Nan Ya contends that it has acted to the best of its ability on this issue, and the petitioners have provided no evidence to the contrary. Therefore, the Department must reject the petitioners' request that the Department apply AFA in calculating Nan Ya's dumping margin. Department's Position: We agree with the petitioners and are applying partial AFA to calculate Nan Ya's dumping margin in this investigation. The Department requires respondents to provide product-specific costs. As the Department's questionnaire specifies, respondent's submitted costs must account for POI cost differences for each of the physical characteristics identified in the section B and C questionnaires. In our initial Section D questionnaire, as well as in the supplemental section D questionnaire, we requested that Nan Ya provide product-specific costs taking into account product thickness, one of the physical characteristics identified in sections B and C of our questionnaire. In both questionnaire responses, Nan Ya claimed that there were no cost differences due to product thickness. However, data obtained at verification shows a correlation between productivity and film thickness, confirming that there are cost differences for products with different thicknesses. During the POI, Nan Ya experienced cost differences for product thickness, which is supported by the data showing a direct correlation between product thickness and production output. See Nan Ya's Cost Verification Report, Exhibit 26. In the Department's view, the requirement to obtain product-specific sales and cost data is one of the most basic and significant requirements for performing the antidumping analysis and margin calculation. The specific physical characteristics which define a product for purposes of an antidumping proceeding are those physical characteristics determined to be the most significant in differentiating between products. These are the physical characteristics that define a unique product for sales and cost comparison purposes. Absent product-specific COP information, we cannot perform, for example, an accurate sales-below-cost test, nor can we determine accurate CVs for use as normal value (NV), as required by the statute and regulations. See Polyester Staple Fiber, at Comment 31. Since Nan Ya did not provide product-specific costs according to thickness in response to the Department's request for information, the Department has determined, in accordance with sections 776(a)(2)(A) and (B) and 776(b) of the Act, that the use of partial AFA is appropriate for Nan Ya's product conversion costs. Section 776(a)(2) of the Act provides that if an interested party or any other person: (A) withholds information that has been requested by the administering authority; (B) fails to provide such information by the deadlines for the submission of the information or in the form and manner requested, subject to subsections (c)(1) and (e) of section 782; (C) significantly impedes a proceeding under this title; or (D) provides such information but the information cannot be verified as provided in section 782(i), the administering authority shall, subject to section 782(d), use the facts otherwise available in reaching the applicable determination under this title. In this investigation, Nan Ya failed to provide information explicitly requested by the Department in accordance with sections 776(a)(2)(A) and (B) of the Act. Because Nan Ya did not provide the information specifically requested by the Department, we must resort to the use of facts available (FA). Section 782(d) is not applicable because Nan Ya indicated in response to the Department's questionnaire that there were no differences in cost for each of the physical characteristics of its merchandise. In our initial Section D questionnaire, we requested that Nan Ya provide product-specific costs taking into account product thickness. Nan Ya, in its October 29, 2001, section D questionnaire response, stated that there were no cost differences due to product thickness. In the supplemental section D questionnaire, we again requested that Nan Ya provide product-specific costs taking into account product thickness. Nan Ya again claimed that there were no cost differences due to product thickness. At verification, we found that Nan Ya does track production times by both production code and thickness. However, despite the fact that Nan Ya does track this information, it still did not provide this information in response to the Department's section D questionnaire or in response to the Department's supplemental section D questionnaire. Absent this information, the Department cannot accurately perform such steps as determining sales below cost, comparing similar products, or calculating CVs for use as normal value for comparisons to U.S. sales. Thus, any remaining information on the record is insufficient to form the basis for any determination under section 782(e) of the Act. Therefore, in accordance with section 776(a)(2), we are applying partial FA to Nan Ya's product-specific costs. In addition, section 776(b) of the Act provides that, if the Department finds that an interested party "has failed to cooperate by not acting to the best of its ability to comply with a request for information," the Department may use an inference that is adverse to the interests of the party as the facts otherwise available. Adverse inferences are appropriate "to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully." See Statement of Administrative Action (SAA) accompanying the Uruguay Round Agreements Act (URAA), H.R. Rep. No. 103-316 at 870 (1994). This provision is intended to induce parties to cooperate in antidumping proceedings. In applying the facts otherwise available, the Department has determined that an adverse inference is warranted pursuant to 776(b) of the Act because the Department has determined that Nan Ya failed to cooperate to the best of its ability, as we discuss below. As noted above, in our section D questionnaire, we requested that Nan Ya provide product-specific costs taking into account product thickness. Nan Ya did not provide the requested information. In our supplemental section D, we stated that cost differences for physical characteristics identified by the Department but not tracked by Nan Ya's normal accounting system should be calculated using a reasonable method based on available record data. In its response to our supplemental Section D, Nan Ya acknowledged that the Department specifically identified thickness as a physical characteristic for matching purposes. However, as it had done in its section D response, Nan Ya stated that in its normal cost accounting system the cost effects of thicknesses are minor and are not reflected in the available records of Nan Ya's cost accounting system. At verification, although Nan Ya claimed that there is no direct correlation between the thickness of the product and hourly production output, we found that at the stretching stage Nan Ya tracks production times by both production code and thickness and the times are measured at the point where each product type reaches the end of the stretching line. See Nan Ya's Cost Verification Report, at 17. Nevertheless, Nan Ya failed to provide this information in response to the Department's questionnaires. This information was crucial to the accurate completion of the Department's antidumping analysis. As mentioned above, without the product-specific cost data, the Department could not perform such steps as accurately determining sales below cost, or calculating CVs for use as NV or ensure proper comparisons with similar merchandise. Therefore, because Nan Ya failed to provide the information requested, despite numerous opportunities to do so, we determine that Nan Ya has failed to cooperate to the best of its ability. In numerous cases, a respondent's normal cost accounting system does not differentiate or provide product-specific costs to the level of detail required by the Department. Our consistent practice, however, is to have respondents start with the costs established in their normal cost accounting system and then further allocate the costs to specific products based upon a reasonable method available to them. See section 773(f)(1)(A) of the Act; see also Polyester Staple Fiber, at Comment 31. While Nan Ya's financial and cost accounting records may not contain the information requested on separate product costs, the company could have developed a reasonable methodology to allocate costs to products on a product-specific basis using the company's normal cost accounting records as a starting point to calculate product-specific costs. As we found at verification, productivity of different products (i.e., the output per hour) is in direct correlation with product thickness. Different productivity rates result in different conversion costs. The more products made in an hour, the less cost is attributable to each product, meaning the product with the highest productivity will have the lowest cost. Nan Ya could have allocated its conversion costs by product thickness (i.e., by productivity rates of products with different thicknesses) using conversion factors based on productivity of products with different thicknesses. This would have been a minimal task since Nan Ya already records product thickness. See Verification Report at 17. Because Nan Ya failed to report product-specific costs according to product thickness, the Department lacks complete and necessary information to calculate an accurate antidumping margin for Nan Ya, as discussed above. Therefore, we find that Nan Ya did not act to the best of its ability in accordance with section 776(b) of the Act. As a result of Nan Ya's failure to comply with our request for information, we have relied on partial AFA in accordance with section 776(b) of the Act. Because Nan Ya did not account for cost differences due to product thickness, we can not be sure that conversion costs were allocated properly to all products. Therefore, for the final determination, as adverse AFA, we noted the difference between the lowest production output for all product thicknesses and the highest production output for all product thicknesses and increased Nan Ya's reported per unit conversion cost by the difference. See Nan Ya's Cost of Production and Constructed Value Calculation Adjustments (May 6, 2002). Comment 4: Nan Ya's Relationship With U.S. Customers The petitioners claim that the record plainly illustrates that Nan Ya has installed relatives throughout its North American distributorships to carry out family-controlled transactions. The petitioners allege that nine out of thirteen North American distributors are either managed or owned by a close family relative. Further, they contend that two Canadian distributors were founded by a close family relative. According to the petitioners, the weight of authority supports a finding that Nan Ya is affiliated with two of its U.S. customers. These companies are referred to as Company A and Company B in this notice for business proprietary reasons. (1) The petitioners claim that Nan Ya and Company A and Company B are affiliated pursuant to section 771(33)(A) of the Act, which states that "members of a family, including brothers and sisters (whether by whole or half blood), spouse, ancestors, and lineal descendants" shall be considered "affiliated" or "affiliated persons." They argue that this language illustrates that affiliated-person family relationships are not limited to brothers, sisters, and spouses. The petitioners contend that the word "including" in this section of the statute indicates that the enumerated family relationships are only examples of a larger set of affiliated-person relationships to which the statute applies. They state that the Court of International Trade (CIT) has upheld Department affiliation findings based on a definition of family that includes uncle-nephew relationships. See Ferro Union, Inc. v. United States, 44 F. Supp 2d 1310 (CIT 1999) (Ferro Union). In a more recent investigation, the Department confirmed that affiliated-person family relationships covered by the statute include "uncle-nephew relationships, aunt-niece relationships, or cousin-cousin relationships. See Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars From the Republic of Korea, 66 FR 33526 (June 22, 2001) and accompanying Decision Memorandum at Comment 1 (Steel Concrete Reinforcing Bars). The petitioners assert that the Department should follow this established principle in analyzing the relationship between Nan Ya and Company A and Company B. The petitioners point out that the existence of a close family relationship is not dispositive of affiliation under section 771(33). They state that the statute provides that "a person shall be considered to control another person if the person legally or operationally is in a position to exercise restraint or direction over the other person." See section 771(33). According to the petitioners, this means that the family relationship must have the "potential to impact decisions concerning the production, pricing or cost of the subject merchandise." See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27297 (May 19, 1997) (Final Rule). Thus, the petitioners maintain that when determining affiliation, the crucial inquiry concerns the capacity to exert control, not actual exertion. Pointing to Ferro Union, the petitioners note that the CIT has upheld the Department's determination of affiliation where the Department found a person second in command had potential legal and operational control of a company. Similarly, they argue that in Steel Concrete Reinforcing Bars, the Department determined that two companies were affiliated because family members held senior management positions with the capacity to control all three companies. The petitioners assert that in this investigation the family's positions in senior management at both Nan Ya and Company A and Company B give it the capacity "to impact decisions concerning the production, pricing or cost of the subject merchandise." See Final Rule, 62 FR at 27296-27298. In addition, they state that family members collectively hold a significant equity interest in Nan Ya and likewise hold ownership interests in Company A and Company B. The petitioners contend that the Department should apply AFA to Nan Ya because it has failed to cooperate by not acting to the best of its ability and by failing to identify and provide requested information concerning affiliation with Company A and Company B despite having the ability to do so. According to the petitioners, Nan Ya has evidenced a persistent pattern of misrepresentation and evasion in this issue that began at the start of this investigation and continued throughout. See Petitioners' Case Brief at 19-21. The petitioners allege that Nan Ya's misrepresentations and lack of candor in this investigation are unacceptable and pervasive. According to the petitioners, there is no question that Nan Ya acted in bad faith because the information the Department has repeatedly requested is clearly within Nan Ya's possession and readily accessible. The petitioners claim that Nan Ya has consciously chosen to omit material information in its questionnaire responses and continued throughout the investigation to provide incomplete and misleading supplemental responses despite being given ample opportunity to clarify its relationship with Company A, Company B, and other U.S. customers. Thus, the petitioners state that the Department should find that Nan Ya and Company A and Company B are affiliated, pursuant to section 771(33), and assign the highest dumping margin for any U.S. sale made to other customers during the POI to Nan Ya's U.S. sales to Company A and Company B as AFA. In rebuttal, Nan Ya states that throughout this investigation, the Department issued to Nan Ya a series of questionnaires regarding Nan Ya's affiliation with some of its U.S. customers. According to Nan Ya, it has cooperated and responded fully to all of the Department's questionnaires and also answered the Department's questions during verification. Nan Ya asserts that it has demonstrated to the Department that it is not affiliated with its U.S. customers, and the Department verified this fact in its sales verification report. See Verification of the Sales Responses of Nan Ya Plastics Corporation, Ltd. (March 26, 2002) at 3-4 (Nan Ya's Sales Verification Report). Nan Ya maintains that there is no indication that Nan Ya's Chairman has any control of the pricing or the business relationship between Nan Ya and its U.S. customers. Neither is there evidence that Nan Ya has any affiliation with any of its customers. Nan Ya states that more than 80 percent of its shares are held publicly and that the company is run by a professional manager who is not related to Nan Ya's Chairman and who must report to the company's board of directors. Nan Ya points out that less than 20 percent of its board members are in any way related to the company's chairman. In conclusion, Nan Ya reiterates its claim that it has fully disclosed the nature of any connections between Nan Ya and its U.S. customers. According to Nan Ya, the facts simply do not support the petitioners' allegations. Nan Ya also maintains that the Department's verifiers concluded that no evidence of affiliation exists. Department's Position: In the preliminary determination, we did not treat Nan Ya as affiliated with its U.S. customers. Instead, we stated that we would continue to collect and analyze information and determine in the final determination whether these companies are considered affiliated under the statute. We invited interested parties to submit comments on this issue, especially with regard to affiliation through a family grouping. See Preliminary Determination, 66 FR at 65890. The Department has analyzed the information on affiliation on the record in this investigation, including the case briefs submitted by the petitioners and Nan Ya. Based on the information on the record, we have determined that Nan Ya and certain U.S. customers are affiliated under section 771(33)(F) of the Act by virtue of common control by members of a family involved in the ownership and management of Nan Ya. Section 771(33)(F) of the Act defines "affiliated" and "affiliated persons" for purposes of our antidumping analysis. Section 771(33)(A) of the Act provides that "{m}embers of a family, including brothers and sisters (whether by whole or half blood), spouse, ancestors, and lineal descendants" shall be considered affiliated. See Certain Welded Carbon Steel Pipes and Tubes from Thailand: Final Results of Antidumping Duty Administrative Review, 62 FR 53808, 53809 (October 16, 1997) (Pipe from Thailand I). (2) Section 771(33)(F) of the Act defines affiliates as "{t}wo or more persons directly or indirectly controlling, controlled by, or under common control with, any person." Furthermore, the statutory definition of affiliated persons in section 771(33) of the Act states that "control" exists where one person "is legally or operationally in a position to exercise restraint or direction" over another person. The SAA indicates that stock ownership is not the single evidentiary factor for determining whether a person is in a position of control, and that control may also be established through corporate or family groupings. See SAA at 838. Moreover, as stated in the final regulations, the Department intends to scrutinize closely issues of affiliation by family groupings. See Final Rule, 62 FR at 53809. In defining family groupings, the Department is not required to find the existence of a "control group acting in concert." Rather, the Department's analysis emphasizes the control group's ability, or "potential to act in concert or act out of common interest" to exert restraint or direction over a company's activities. See Certain Welded Carbon Steel Pipes and Tubes From Thailand: Final Results of Antidumping Duty Administrative Review, 63 FR 55578, 55581-55582 (October 16, 1998) (Pipe from Thailand II) (emphasis added). Furthermore, single or multiple persons or groups may be in control, individually and jointly, of one or more entities. See Pipe from Thailand I, 62 FR at 53815. Pursuant to 19 CFR 351.102(b), in determining whether control over another person exists, within the meaning of section 771(33) of the Act, the Department will consider, among other factors: (1) corporate or family groupings, (2) franchise or joint venture agreements, (3) debt financing, and (4) close supplier relationships. The Department will not, however, find that control exists unless the "relationship has the potential to impact decisions concerning the production, pricing or cost of the subject merchandise or foreign like product." In applying this provision, the Department makes a case-by-case determination of whether the relationship has the potential to affect the subject merchandise. See Final Rule, 62 FR at 27297-27298. As discussed below, we find that Nan Ya is affiliated with Company A and Company B under section 771(33)(F) of the Act by virtue of common control by members of the same family. The family members are affiliated under section 771(33)(A) of the Act because they are members of the Wang family and under the Act, the members of the family are viewed as a unit, i.e., person. The Wang family is in a position of legal and operational control of Nan Ya, Company A, and Company B by virtue of the family's substantial ownership in all three companies and the positions of family members as officers of these companies. Given that the Wang family is legally and operationally in a position of control over Nan Ya, Company A and Company B, these companies are affiliated under section 771(33)(F) of the Act. (3) See Pipe from Thailand I, 62 FR at 53810. In its rebuttal comments, Nan Ya argues that the Department's overview of Nan Ya's corporate structure, activities, ownership, and affiliation did not reveal any evidence that the owners of Company A and Company B have ever worked for or owned stock in Nan Ya or served on Nan Ya's board, and that there is no indication that Nan Ya's Chairman has any control over pricing or the business relationship between Nan Ya and its U.S. customers. However, we note that, while the Department verified documents related to Nan Ya's corporate structure, affiliation, and stock-ownership, and did not find any evidence of affiliation based on these documents, the Department's test of affiliation does not focus solely on stock ownership. The SAA indicates that stock ownership is not the single evidentiary factor for determining whether a person is in a position of control, and that control may also be established through corporate or family groupings. See SAA at 838. Therefore, while our overview of Nan Ya's corporate structure, activities, ownership, and affiliation did not reveal any evidence that the owners of Company A and Company B have ever worked for, owned stock in, or served on the Board of Directors of Nan Ya, it did not address the issue of family relationship or control. Furthermore, the Department's test of affiliation does not mandate a finding of actual or absolute control, but merely predicates that the parties in question be in a position to influence decisions concerning the production, pricing, or cost of the subject merchandise or foreign like product. In light of the forgoing discussion, the Department has reason to believe that the Wang family has the potential to influence the decisions concerning the production, pricing, or cost of the subject merchandise or foreign like product. See 19 CFR 351.102(b) and Pipe from Thailand II, 63 FR at 55580 and 55586. Because we have concluded that Nan Ya is affiliated with two of its U.S. customers, Company A and Company B, the appropriate sale for use in our analysis is the sale by the two U.S. affiliates to their unaffiliated U.S. customers. Those sales are constructed export price (CEP) transactions because they were made in the United States after the date of importation. See section 772(b) of the Act. For CEP sales, the Department deducts from the U.S. resale price to an independent purchaser all selling, distribution, and manufacturing expenses incurred in the United States and an amount for profit allocable to these expenses. See section 772(c) of the Act. However, since Nan Ya reported its CEP sales as export price (EP) sales, we are unable to calculate accurate dumping margins for its sales through Company A and Company B. Although Nan Ya responded to the Department's questionnaire and supplemental questionnaires regarding affiliation, it failed to report its affiliated U.S. customer sales. Sections 776(a)(2)(A) and 776(a)(2)(B) of the Act provide for the use of FA when an interested party withholds information that has been requested by the Department, or when an interested party fails to provide the information requested in a timely manner and in the form required. Since Nan Ya neither reported its affiliation with its U.S. customers nor provided the sales information for its U.S. customers, as requested by the Department, we must resort to the use of FA. Because Nan Ya did not provide the information regarding its affiliation and did not provide the sales data of its affiliates, section 782(d) of the Act is not applicable. Further, absent this information, i.e., the sales price to the unaffiliated customer and the expenses incurred in making those sales, the Department cannot calculate CEP, and therefore cannot accurately calculate a dumping margin. Thus, the information on the record cannot serve as a reliable basis for this determination under section 782(e) of the Act. Therefore, in accordance with section 776(a)(2) of the Act, we are applying FA to calculate CEP for Nan Ya. In its Section A questionnaire response, Nan Ya stated that all of its U.S. sales during the POI were EP sales. Nan Ya then stated that, during the POI, it made a relatively small amount of sales to two companies in the United States, Company A and Company B, which employ a relative of Nan Ya's Chairman, Y.C. Wang. See Nan Ya's August 17, 2001, Section A Questionnaire Response at 1. Later, in response to a supplemental questionnaire, Nan Ya stated that relatives of Chairman Wang were officers and shareholders in Company A and Company B. See Nan Ya's October 12, 2001, Supplemental Response. Despite admitting that a family relationship existed between the Nan Ya's chairman and the officers of Company A and Company B, Nan Ya did not submit a revised U.S. sales database, and continued reporting the sales to Company A and Company B as EP sales. As long recognized by the CIT, the burden is on the respondent, not the Department, to create a complete and accurate record. See Pistachio Group of Association Food Industries v. United States, 671 F. Supp. 31, 39-40 (CIT 1987). Therefore, because it did not report the sales of those affiliated resellers, we find that the application of FA is warranted. As FA, we have applied the dumping margin of Nan Ya's sales to unaffiliated customers to Nan Ya's sales to these two affiliated customers. Comment 5: Nan Ya's Recycled Packing Costs The petitioners state that they have raised the issue of recycled packing costs on several occasions in this case because it is common for PET film producers to recycle packing materials and because an accurate accounting of recycled packing costs is important to the Department's dumping calculation. According to the petitioners, the statute provides for the adjustment of differences in the cost of packing for exports and for sales in the home market. Moreover, the petitioners claim that it is established Department practice to take into account recycling in determining export and home market packing costs. Thus, the petitioners maintain that when packing materials such as pallets and drums have a one-time use for exports, but multiple use through recycling for sales in the home market, the cost of packing for exports is greater than that for sales in the home market. The petitioners contend that in this case packing cost is material because it represents a substantial portion of the sales price. Although Nan Ya stated that it recycled pallets and sideplates in its responses, the petitioners assert that Nan Ya apparently only included recycled pallets and plastic cores in its calculations. See Nan Ya's Supplemental Questionnaire, dated November 9, 2001, at Exhibit 2. The petitioners further note that at verification the Department found that "recycled materials are used with some of Nan Ya's home market customers," but that "none of the U.S. packing materials are reused, recycled or returned by customers." See Nan Ya's Sales Verification Report at 13 and 18. According to the petitioners, however, Nan Ya's reported packing costs do not reflect this finding. Further, they claim that the data on the record regarding the extent of recycling and its impact on differences in U.S. and home market packing are unreliable and incomplete. The petitioners state that the Department made note of Nan Ya's treatment of the purchase price of plastic cores in its verification report, but there is no data on the record concerning Nan Ya's actual usage of recycled pallets, side plates and plastic cores. In these circumstances, the petitioners contend that the best available basis for adjusting U.S. and home market packing costs is to take into account differential use of recycled materials. Specifically, the petitioners recommend that the Department increase Nan Ya's reported U.S. packing costs by the share of packing costs that are recycled in the home market. In rebuttal, Nan Ya states that the Department's verifiers examined Nan Ya's packing cost reporting methodology and confirmed that Nan Ya accurately reported its use of certain recycled packing materials. Nan Ya states that the Department confirmed that these materials were used only for home market customers. Further, Nan Ya claims that it identified all packing material components in the source documentation the company provided to the Department's verifiers, including those that were recycled. In addition, Nan Ya maintains that the Department reconciled the company's reported figure for recycled packing materials to Nan Ya's cost calculation worksheet. Nan Ya states that the Department noted no discrepancies and tied all related figures to Nan Ya's accounting system. Thus, Nan Ya asserts that the Department should reject the petitioners' request that the Department recalculate Nan Ya's home and U.S. market packing costs. Department's Position: We disagree with the petitioners' suggestion that Nan Ya's U.S. and home market reported packing costs should be adjusted for the final determination. Contrary to the petitioners' argument, we verified that the only packing material recycled by Nan Ya are plastic cores and pallets used for home market customers. Moreover at verification, we closely examined the methodology used by Nan Ya to calculate packing and found that Nan Ya's home market and U.S. packing cost data wwere reliable. See NanYa Sales Verification at 13 and Exhibit 1C. Therefore, we have not adjusted Nan Ya's packing cost for this final determination. Comment 6: Nan Ya's Sales Quantities From the outset of this investigation, the petitioners contend that they have expressed concern that Nan Ya could circumvent an antidumping order by providing more film to a customer than the quantity shown on the invoice. See e.g., Petitioners' October 23, 2001, Letter to the Department re: Comments to Nan Ya's Supplemental Sections B & C Questionnaire Responses. The petitioners state that under-reported quantities also distort the Department's margin calculations. In its August 17, 2001 Section A Questionnaire Response, Nan Ya reported that it only made a limited number of sample sales during the POI. However, according to the petitioners, the Department's verification exhibits include documentation on a U.S. sale where the packing list shows a shipment with a greater quantity than is reported in the U.S. sales database. Nan Ya accounts for this difference by referring to the additional quantity as a sample "with no commercial value." See Nan Ya's Sales Verification, Exhibit 11 at 2 and 8. The petitioners state that since this excess quantity is not one of the sample sales reported by Nan Ya in its questionnaire response, the Department should increase the quantity for this transaction and reduce the gross unit price. Further, the petitioners state that although this adjustment corrects the excess quantity problem for this particular transaction, it does not address other instances where under reported quantities likely exist. The petitioners point out that the Department's verification report only covers seven U.S. sales. They argue that if the Department extrapolates the adjustment they recommend for the transaction discussed above to all of Nan Ya's U.S. sales based on the Department's verification ratio (sales verified to total U.S. sales), it would show how substantial under reported quantities may be in this case and how significant this factor is for an accurate dumping calculation. The petitioners contend that adjusting Nan Ya's understatement of sales quantities is necessary for a reliable dumping calculation in this case. In rebuttal, Nan Ya point outs that for one sale, the Department noted a small oversight in Nan Ya's reporting with regard to quantity. Nan Ya contends that the petitioners seek to exaggerate this single error to inflate the margin by claiming that it undermines the whole database. Nan Ya argues that the Department must disregard the petitioners' accusation that a sample sale that appears in a single packing list for a single sale within the POI should somehow lead the Department to question the integrity and accuracy of Nan Ya's reported total sales quantity. According to Nan Ya, the Department's sales verification report describes tests that Department officials used to ensure that Nan Ya's sales quantities had been accurately reported. Nan Ya maintains that a full reading of the Department's sales verification report does not leave one with the impression that Nan Ya has in any way misreported any of its sales information. On the contrary, Nan Ya contends that the Department's verification confirmed that Nan Ya's sales databases, with the exception of a handful of minor corrections disclosed by Nan Ya at the beginning of verification, were reported to a high degree of accuracy. Department's Position: We agree with Nan Ya that there is no basis to adjust the sales quantities and gross unit prices for all U.S. sales. We identified only one sale at verification for which the sales quantity had been incorrectly reported and the error was relatively small. In the course of verifying the reported quantities for other U.S. sales, we noted no other sale incorrectly reported as a sample sale or with the sales quantities incorrectly reported. Therefore, we found no indication that this particular error was anything other than inadvertent. Therefore, for the final determination, we have corrected for this error by adding in the unreported quantity and sales value for this one sale only. Comment 7: Shinkong's Home Market Sales Made to Port The petitioners state that Shinkong has included in its home market sales database shipments that were delivered to Taiwanese ports, even though the respondent believes these shipments are destined to other markets. See Verification Report for Shinkong Synthetic Fibers Corporation, dated March 28, 2002, at 12 (Shinkong's Sales Verification Report). Prior to verification, the petitioners requested that the Department review these port shipments. The petitioners contend that although they cannot determine from the verification report whether the Department actively examined the exporter instructions to Shinkong to confirm such "indications of destination," they believe that sufficient evidence exists on the record to exclude these port sales from Shinkong's home market database. According to the petitioners, there is additional support for such exclusion found in Shinkong's sales reconciliation submission. The petitioners maintain that these materials show that the port sales may be categorized in Shinkong's books and records as "indirect exports," further suggesting that the port sales are not made to the home market, but are ultimately destined for export markets outside of Taiwan. Accordingly, in the final determination, the petitioners state that the Department should delete the port sales from Shinkong's home market sales database. The petitioners assert that this comports with the Department's longstanding practice to exclude such sales where the respondent knew or had reason to know that the merchandise was not sold for home market consumption. See Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From Taiwan, 64 FR 30592, 30598 (June 8, 1999) (Stainless Steel Sheet and Strip in Coils From Taiwan). From the beginning of this investigation, Shinkong contends, it informed the Department that it was including in its home market database sales that were shipped to container yards near ports (code 2 sales) and to bonded warehouses (code 4 sales). According to Shinkong, it further informed the Department that it had no proof of the ultimate destination of these sales, as it did not export them. Shinkong points to the verification report where it claims that the Department found no evidence that Shinkong had documentary proof of the ultimate destination of the merchandise. See Shinkong's Sales Verification Report at 10-11. Thus, Shinkong argues that since the record shows these sales to be made within the home market, the Department should continue to treat them as home market sales. Shinkong asserts that the case cited by the petitioners is not relevant to code 2 sales, since those sales (1) were not shipped in bond to a port; (2) were not made to bonded warehouses, and (3) Shinkong did not "know" whether they were ultimately exported to the U.S. Thus, Shinkong argues that the facts in the instant investigation are different from those cited by petitioners. With respect to code 4 sales, Shinkong maintains that while they were shipped to bonded warehouses, they could have been shipped out of those warehouses back into Taiwan proper, further manufactured and shipped back to Taiwan, or exported. Shinkong claims that it has no knowledge of the ultimate destination of those shipments. Therefore, Shinkong argues that there is no verified information on the record to support petitioners' arguments. Department's Position: We agree with the petitioners that sales that were shipped by Shinkong to container yards near ports (code 2 sales) should be excluded from Shinkong's home market sales database. Under section 773(a)(1)(B), NV is based on sales of the like product for consumption in the home market. Thus, sales may be excluded from the home market database if a respondent knew or had reason to know that merchandise was not sold for home consumption even if the respondent did not know the ultimate destination. See, e.g., INA Walzlager Schaeffler KG v. United States, 957 F. Supp. 251, 263H (CIT 1997). In the instant case, the record indicates that Shinkong knew or had reason to know that code 2 sales were not sold for consumption in the home market even if it did not know the ultimate destination of those sales. At verification, "company officials noted that because container terminals are located close to Taiwan's ports, it is Shinkong's general understanding that the customers of such sales (code 2) eventually export this merchandise." Company officials further stated that because "Shinkong has no definite knowledge as to the ultimate destination of code 2 sales, the company reported these as domestic sales in its home market sales listing." See Shinkong's Sales Verification Report at 12. Thus, for the final determination we excluded Shinkong's code 2 sales from the home market sales database. With respect to sales made to bonded warehouses (code 4 sales), we agree with Shinkong that those sales should be treated as home market sales. It is Department practice that if merchandise sold in the home market, even if ultimately destined for export, was consumed in the home market in producing non-subject merchandise prior to exportation, then it should be reported as part of the home market sales database. See Stainless Steel Sheet and Strip in Coils From Taiwan, 64 FR at 30598. At verification, the Department verified that all code 4 sales were made to a single customer, a Taiwanese affiliate of a Japanese company, that further manufacturers PET film into adhesive tape. Company officials noted that it was their understanding that the adhesive tape was eventually exported. See Shinkong's Sales Verification Report at 12. Therefore, for purposes of the final determination, we will continue to treat code 4 sales as home market sales. Comment 8: Shinkong's Packing Costs The petitioners state that the record makes clear that the Department cannot rely on Shinkong's revised home market and U.S. packing cost in the final determination. According to the petitioners, Shinkong has reported a uniform packing cost in the U.S. and home markets for each pack type, even though the cost of packing for export is greater than that for home-market consumption because packing materials for export experience one-time use, while home market packing materials are returned from customers and reused. In addition, the petitioners allege that the Department found during verification that Shinkong's rolls/pallet assumption (4) underlying its packing cost allocation is flawed as a result of the mistaken addition of meters and pieces related to cores. See Shinkong's Sales Verification Report at 3. The rolls/pallet assumption is important because it drives Shinkong's allocation of packing, labor, depreciation, utilities and other expenses. The petitioners contend that by overstating the rolls/pallet cost for 3 inch pack types, Shinkong has created "convert rates" for the predominate 3 inch pack type that are higher than the predominate 6 inch pack type. See Shinkong's Section B and C Questionnaire Response, Exhibit B-8 at 8 (August 31, 2001). The petitioners state that Shinkong has reported uniform packing costs in the U.S. and home markets for each pack type. According to the petitioners, this cannot be correct given the errors in "conversion rates" and given the fact that recycling only occurs on packing for home-market sales. To remedy this problem, the petitioners recommend that the Department substitute the average packing overhead for the reported specific packing overheads. The petitioners assert that the statute, i.e., sections 773(a)(6)(A) and (B) of the Act, requires the Department to adjust for differences in packing costs for sales in the U.S. and home markets. Moreover, the petitioners argue that Department practice is to take account of differences in packing costs based on the fact that materials are used once for export sales, but used multiple times through recycling in the home market sales. In these situations, the cost of packing for export sales is greater than the cost of packing for sales in the home market. See Final Determination of Sales at Less Than Fair Value: Industrial Nitrocellulose from Brazil, 55 FR 23120, 23122 (June 6, 1990); Anhydrous Sodium Metasllicate From France; Final Results of Administrative Review of Antidumping Duty Order, 49 FR 43733, 43734 (October 31, 1984). In the instant case, the record shows that only customers in the home market return packing materials. See Shinkong's Second Supplemental Sections A, B and C Response (November 14, 2001), at 6. Thus, the petitioners argue that Shinkong's packing cost for home market sales must be less than its packing cost for U.S. sales when the same type of materials are used for both. However, the petitioners point out that Shinkong's reported packing cost fails to reflect this difference because Shinkong spreads the cost savings that it made on recycled materials across both home and U.S. market sales. Therefore, the petitioners assert that because Shinkong's reporting methodology is inconsistent with the statute and based upon past Department practice and the facts of this case, the Department should recalculate Shinkong's packing costs to reflect the fact that only home market customers return packing materials. The petitioners state that Shinkong has not placed on the record information regarding the quantities of new and recycled pieces of those part numbers actually used in the home market. As FA, the petitioners recommend that the Department adjust Shinkong's reported packing costs by treating all of these part numbers used in the home market as recycled materials. In rebuttal, Shinkong argues that the petitioners are operating under a fundamental misconception. According to Shinkong, the petitioners believe that U.S. sales use packing materials only once, while the materials may be re-used for home market shipments. This is incorrect. The re-used material is used for packing PET film sold both in the home market and the United States. Moreover, Shinkong states that the Department verified that it "included the cost of repurchased packing materials in the reported packing costs." See Shinkong's Sales Verification Report, at 21. Shinkong contends that it explained to the verification team that only home market customers sell used packing materials back to Shinkong. Shinkong takes the used packing materials and simply puts them back into the general packing materials inventory. Thus, they may be re-used in both home market and U.S. sales. Shinkong maintains that it has no reason to track the use of re-used packing materials. Thus, it claims that there is a 50-50 chance of any re-used packing material being used for U.S. shipments. With respect to the petitioners' argument that the rolls/pallet assumption by Shinkong is incorrect, Shinkong states that while the narrative response of Shinkong did add meters and pieces, the underlying calculations used for the packing costs in the database were correct. According to Shinkong the Department verified the accuracy of the use of meters and pieces. See Shinkong's Sales Verification Report, at 21. Finally, regarding the petitioners' argument that the packing costs for U.S. sales were incorrectly reported because of the recycling cost issue, Shinkong contends that the Department verified that Shinkong used the correct methodology. Thus, no change is warranted. Department's Position: We disagree with the petitioners' argument regarding recycled packing material. We verified that Shinkong repurchases packing materials from home market customers only. These packing materials are returned to general packing material inventory. We confirmed that the recycled materials are used for all types of packing without regard to whether the sale is for the home market or United States. We verified that the company included the cost of recycled packing material in the per unit packing cost for both the home market and U.S. sales. See Shinkong's Sales Verification Report at 23 and Exhibit 26. Contrary to the petitioners' contention, we did not find during verification that Shinkong's rolls/pallet assumption was flawed. In the schedule of materials worksheet submitted by Shinkong in its Section B Questionnaire Response, it inadvertently combined quantities of different units (i.e., meters and pieces) for 3 inch paper cores. However, we verified that the calculations used for the packing cost in the home market and U.S. sales databases were correct. Further, during our tour of Shinkong's factory, the Department verified the rolls/pallet assumption for different packing types. Id. at 23 and Exhibit 29. Therefore, the petitioners' allegation that the cost of packing is higher for U.S. sales than it is for home market sales is without merit. Comment 9: Shinkong's CPA Adjustments In the preliminary determination, the Department increased Shinkong's cost of manufacture (COM) by apportioning the amount of the "Other- Production-CPA Adjust," a figure containing adjustments Shinkong's auditor made and a large reconciliation item in Shinkong's COP response, to Shinkong's operating divisions, including its PET film division. Shinkong argues that the CPA adjustments were irrelevant to subject merchandise, and should be excluded, except for the pension fund adjustment and the year-end bonus adjustment. Shinkong agrees that the amounts verified by the Department for these two items should be factored into the COP of subject merchandise. In discussing the other CPA adjustments, Shinkong maintains that with respect to "losses on factory shutdown," the verification report does not state that this item was neither verified, nor unreconciled. Accordingly, Shinkong argues that the verified data should be used in the final determination. Shinkong points out that in discussing "unrealized sales gross profit" the Department notes in its cost verification report that: "Company officials stated that the 'affiliated company' is actually two companies, the Chinese and Thai subsidiaries. The auditor sheets, however, does not identify the affiliated companies." According to Shinkong, this statement appears to imply that unless the Department knows the identity of the affiliates, it will not correctly allocate this data. However, Shinkong argues that there is substantial evidence on the record not only identifying these companies, but identifying them as being located outside of Taiwan. Shinkong claims that it clearly distinguished for the verification team the amount of "cost of sales of raw materials and supplies" that came from the Taoyun plant, and therefore should be allocated to subject merchandise, and the amount that came from the Chung Li plant, which does not make the subject merchandise. Shinkong maintains that the verification team did not request any other documents to prove Shinkong's claim. Moreover, Shinkong contends that Shinkong's Cost Verification Report does not indicate that the figures do not tie to the accounting records, or that the data for the appropriate merchandise was not verified. Accordingly, Shinkong states that the verified data should be used in the final determination. The petitioners state that the Department's cost verification focused on particular items that make up Shinkong's CPA adjustment. According to the petitioners, the purchase of DVD chips from Shinkong's subsidiary in Thailand, concerns reclassifying an amount from one division to another. However, the petitioners claim that there is no dispute that the item is properly included in cost of goods sold (COGS). The petitioners maintain that as long as it is reflected as such in the general ledger, it should not matter whether the item related specifically to PET film-and there should be no need to subtract this item from COGS in the financial statement as part of reconciliation. Another item included as a CPA adjustment, "losses on factory shut-down," concerns reclassifying an amount from "non-operating expenses" to COGS. According to the petitioners, this reconciliation should result in a subtraction of this item from COGS in the financial statement. However, the Department's verification statement includes the following statement: "[c]ompany officials claimed that this shutdown expense is already included in the reported costs because this expense primarily consists of labor expenses." See Shinkong's Cost Verification Report at 10. The petitioners argue that this makes little sense because whether or not these expenses have been reported should hinge on whether Shinkong included non-operating expenses from the general ledger in its COM calculation-not whether they are labor expenses. The petitioners state that another item, "cost of sales of raw materials and supplies," concerns reclassifying an amount from "miscellaneous expenses" to COGS. According to the petitioners, this amount should be subtracted from the COGS in the financial statement and adjusted for reconciliation. The petitioners state that Shinkong seems to propose that the portion of this increase in COGS that is related to PET film should be added to general and administrative (G&A) expenses. The petitioners maintain that this is nonsense and argue that if the auditors deem that expense to be COGS for PET film, then it should be part of COM-not G&A. According to the petitioners, the "pension adjustment" and the "overestimated year-end bonus" represent adjustment items that are properly reflected in the general ledger and therefore require no adjustment for reconciliation. Further, the petitioners argue that "Item P" (unrealized gain on sale of equipment to affiliated parties in Thailand and China) should not be required in the reconciliation, but is clearly part of the CPA adjustment for the first quarter of 2000. The petitioners believe that in the final determination, the Department should revise the CPA adjustment with respect to amounts of "unrealized sales gross profit" and "depreciation expenses on leased assets." However, the Department should treat the remaining aspects of the CPA adjustment in the same manner as in the preliminary determination. In rebuttal to Shinkong's comments, the petitioners state that the underlying issue before the Department is whether it has received a consistent and reliable explanation of items relating to the CPA adjustment as proper reconciliation items and not, as Shinkong suggests, whether one or more of these items appears in some part of the general ledger for PET film operating division. In dealing with "loss on factory shutdown," the petitioners claim that Shinkong simply focuses on whether the Department seemed satisfied with certain data or documentation presented at verification but ignores the more important issue in the verification report, which is illustrated by the Department's statement that "{c}ompany officials claimed that this shut-down expense is already included in the reported costs because this expense primarily consists of labor expenses." See Shinkong's Cost Verification Report at 10. The petitioners argue that this assertion by company officials is inconsistent with Shinkong's general explanation for "losses on factory shutdown" as a reconciling item because it implies that the shutdown expense was already in the COGS of the operating divisions even though the Department was told that this item was reclassified from "non-operating expenses" to other COGS. According to the petitioners, if these expenses were already in the operating divisions' COGS, then it should not be a reconciling item for COGS. On the other hand, if the shutdown expense was in "non-operating expenses," but was reclassified to COGS, then it should be a reconciling item for COGS. With regard to the "cost of sales of raw materials and supplies," the petitioners contend that the Department's real concern on this matter is whether it has received a consistent explanation of the CPA adjustment as a reconciling item for COGS. According to the petitioners, the cost verification report states that company officials agreed that it is appropriate to include an amount from this CPA adjustment in the G&A calculations. The petitioners maintain that this statement contradicts Shinkong's explanation of the CPA adjustment during verification. Specifically, the petitioners allege that Shinkong's assertion that this amount is part of G&A conflicts with the statement in the verification report that this was a "reclassification" from "miscellaneous expenses" to COGS and therefore properly part of the reconciliation between COGS and operating division COGS. In rebuttal to the petitioners' comments, Shinkong states that it is clear that all of the CPA adjustment data was thoroughly explained to the verification team and verified. Thus, Shinkong claims that nothing the petitioners argue to obfuscate the issue can detract from the fact that the CPA adjustment data was reconciled and verified. According to Shinkong, the petitioners' misunderstanding of generally accepted accounting principles (GAAP) in Taiwan cause them to incorrectly interpret virtually all of Shinkong's accounting system. For example, Shinkong claims that the petitioners' argument concerning "losses on factory shut-down" is incorrect. Shinkong notes that this should be an increasing item, rather than a decreasing item, because it is on the debit side and Shinkong did not include the shutdown period labor cost in its Section D calculation since it used the total actual paid labor divided by the net production quantity at each stage of production. For basically the same reasons, Shinkong maintains that the petitioners are wrong about "cost on sales of raw materials and supplies." Shinkong states that this item is on the debit side and should be increased, not decreased. Further, Shinkong argues that according to the Taiwanese GAAP, the "cost of sales of raw materials or supplies" are recorded as "other expense" under G&A. In addition, Shinkong asserts that the "pension adjustment" and "overestimated year-end bonus" are expenses reported in Shinkong's Section D calculations. According to Shinkong, the Department verified the appropriate amounts that should be adjusted for these items. Finally, Shinkong states that contrary to petitioners' arguments Item P (unrealized gain on sale of equipment to affiliated parties in Thailand and China) should not be included because it occurred in the first quarter of 2000, which is outside of the POI and it was not related to subject merchandise. Shinkong states that the reclassifications and adjustments performed by Shinkong's independent auditor, which affected both subject and non- subject merchandise, were found by the Department to be correct. Shinkong contends that the Department is required to calculate a COP for the subject merchandise as precisely as possible and argues that only by using verified data will the Department accomplish this goal. Finally, Shinkong notes that the petitioners did not cite even one instance where either a CPA adjustment was not verified by the Department, or an explanation of the rationale for any CPA adjustment was not accepted by the Department. Moreover, Shinkong maintains that the petitioners did not cite any legal authority to support their argument. Department's Position: We agree with Shinkong in part that the Department should modify its treatment of the CPA adjustments in the final determination In its Section D Questionnaire Response, Shinkong stated that it had excluded from its calculations certain "Non-Operations Income/Expense" because it claimed these items were "irrelevant to the subject merchandise." See Shinkong's Section D Questionnaire Response, October 29, 2001. In our Section D Supplemental Questionnaire, we asked Shinkong to explain in detail (emphasis added) why it excluded each expense that it described as "irrelevant to the subject merchandise." On November 30, 2001, Shinkong explained that one of the excluded "irrelevant" items included CPA adjustments, or adjustments to the financial statement made by its independent auditor. These adjustments included "losses on sales of fixed assets, utilities costs sold to Shinkong Spinning Corporation, cost of equipments sold to Hangzhou Huachun Chemical Fiber Co., rental assets depreciation, cost on sales of raw material and supplies, losses on sales of vehicles." However, instead of providing an explanation of why these items were irrelevant to subject merchandise, Shinkong stated that it would "provide sufficient documentation to substantiate this determination during the on-the-spot verification." See Shinkong's Section D Supplemental, November 30, 2001, at 4. Further, in its Total Cost of Manufacture Reconciliation Worksheet submitted as Exhibit 1 to its Section D Supplemental Response, Shinkong listed the CPA adjustments as an adjustment to its cost of goods sold (COGS). These adjustments represented nearly 16 percent of the total COGS. Given the large size of these adjustments, and Shinkong's failure to provide a detailed explanation regarding why it had excluded these items for the preliminary determination, we recalculated Shinkong's COM to attribute a portion for CPA adjustments to subject merchandise for purposes of the Department's preliminary determination in this proceeding. In comments submitted to the Department on January 10, 2002, Shinkong objected to the Department's preliminary determination regarding its CPA adjustments. It complained that it had explained clearly that the CPA adjustments had nothing to do with the COM of the subject merchandise and that the Department had no authority to assume the worse case scenario, without first asking Shinkong in a supplemental questionnaire about the CPA adjustments and their relevance to subject merchandise. It requested that the Department amend the Preliminary Determination to correct what it called a "methodological error." See Request for Amended Preliminary Determination, January 10, 2002. In its January 10, 2002, submission, Shinkong included an exhibit which listed each of the CPA adjustments in question. The CPA adjustments included the following adjustments to the COGS: 1) the purchase cost of material incurred by the Thai Shinkong Industry Corporation; (2) the losses incurred as a result of the shut-down of a factory; (3) a pension adjustment; (4) the costs incurred on the sales of raw materials and supplies; (5) the transfer to waste; (6) the depreciation expense incurred on leased assets; (7) an amount representing the overestimate of year-end bonuses; and (8) the unrealized sales gross profit. The largest of these CPA adjustments was the purchase cost of material, in this case, DVD chips from Shinkong's subsidiary in Thailand, the Thai Shinkong Industry Corporation. This item represents an increase to the COGS and constitutes nearly 90 percent of the total CPA adjustments. We verified that these DVD chips are not used in the production or sale of subject merchandise. Therefore, we did not include this adjustment in our calculation of Shinkong's COM. Similarly, we found that the "depreciation on leased assets" represents the depreciation on machinery used to produce non-subject merchandise. We also verified that "unrealized sales gross profit," was related to subsidiaries of Shinkong that were not involved in the production of subject merchandise. Additionally, we verified that the cost of transferring scrap to waste and a portion of the "cost on sales of raw material and supplies" were not attributable to subject merchandise. Id. at Exhibit D1. We, therefore, excluded these items from our calculation of Shinkong's COM as well. With regard to the CPA adjustments for the pension fund and the overestimate of year-end bonuses, Shinkong reported that it failed to allocate these adjustments to subject merchandise as part of the minor corrections it presented at the start of the verification. We reconciled these to items to Shinkong's general ledger. Further, as part of its minor corrections claims, Shinkong reported that an amount of the "cost on sales of raw material and supplies" attributable to subject merchandise was omitted from its calculation of G&A expenses. Thus, for the final determination, we increased Shinkong's G&A expenses by the amount of the "cost on sales of raw material and supplies" attributable to subject merchandise. In relation to the losses incurred as a result of the shut-down of one of Shinkong's factories, we were unable to verify that these losses were included in the reported COM as asserted by Shinkong. Shinkong argues that the losses are already included in reported labor costs and adding them into the COM would, thus, constitute double counting. However, in reconciling all the CPA adjustments to Shinkong's financial statement, we were unable to verify the inclusion of these losses in Shinkong's reported COM. Thus, while the issue was discussed at verification, no documentation was provided to demonstrate that these expenses were already included in Shinkong's reported COM. As a result, we have included an allocated amount of losses in our calculation of Shinkong's COM. To establish the amount, since it is not disputed that the losses incurred as a result of the factory shut-down are related to all products produced by Shinkong, we allocated these losses to Shinkong's total production, not just the production of subject merchandise. In conclusion, we excluded from Shinkong's COM the CPA adjustment items which were not related to the production or sales of PET film. In contrast, we included those items that were related to the production or sales of subject merchandise and that Shinkong did not demonstrate were already in the production costs the company reported. Therefore, for the final determination, we allocated amounts of the pension fund adjustment, year-end bonus adjustment, cost on sales of raw material and supplies, and the losses incurred as a result of a factory shut-down to Shinkong's COM for PET film. See Calculation Memorandum of the Final Determination of the Investigation of Shinkong Synthetic Fibers Corporation, May 6, 2002. Recommendation Based on our analysis of the comments received, we recommend adopting the positions described above. If these recommendations are accepted, we will publish the final determination and the final weighted-average dumping margins in the Federal Register. Agree__________ Disagree__________ Let's Discuss___________ __________________________________ Joseph A. Spetrini Acting Assistant Secretary for Import Administration __________________________________ (Date) ________________________________________________________________________ footnotes: 1. Due to the proprietary nature of these issues, for further discussion, see memorandum from Holly A. Kuga to Bernard T. Carreau, Whether Nan Ya Plastics Corporation, Ltd., is Affiliated, Under the Tariff Act of 1930, as Amended, with its U.S. Customers, May 6, 2002 (Nan Ya Affiliation Memo). 2. In Ferro Union, the Court upheld the Department's determination in Pipe from Thailand I that a "family" is a control person under section 771(33)(F) of the Act. The Court ruled that "the singular word 'person' {in section 771(33)(F) of the Act} can be interpreted to encompass a 'family' in order to carry out the intent of the statute." The Court noted that the intent of the statute, as expressed by the SAA, "was to identify control exercised through 'corporate or family groupings.'" The Court concluded that "by interpreting 'family' as a control person, Commerce was giving effect to this intent." Ferro Union, 44 F.Supp. 2d at 1326. 3. Due to the proprietary nature of these issues, for further discussion, see Nan Ya Affiliation Memo, May 6, 2002. 4. The petitioners use the term "rolls/pallet assumption" in their discussion of Shinkong's allocation of packing expenses (material, labor, utilities, etc.) The Department understands this "rolls/pallet assumption" to represent the amount of rolls per pallet for different types of packing.