A-570-504 NSR: 8/1/00-1/31/01 Public Document G3O7: JB MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Joseph A. Spetrini Deputy Assistant Secretary for Import Administration, Group III SUBJECT: Issues and Decision Memo for the Final Results of the New Shipper Review of Petroleum Wax Candles from the People's Republic of China Summary We have analyzed the comments and rebuttals of interested parties in the August 1, 2000 through January 31, 2001, new shipper review of the antidumping duty order covering petroleum wax candles from the People's Republic of China (PRC). As a result of our analysis, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in the "Discussion of the Comments" section of this memorandum. Below is the complete list of the issues in this new shipper review for which we received comments and rebuttals by parties: 1. Affiliation of Exporter and U.S. Importer 2. Time Periods for Factor Values 3. Factor Value For Coal 4. Inflation Adjustment For Electricity 5. Factor Identification For Additive 6. Percent Factors For Factory Overhead, SG&A, and Profit 7. Number of Labor Hours Incurred in Candle Production 8. Ocean Freight 9. Foreign Port Brokerage, Handling, and Loading Expenses And Marine Insurance Applicable Statute and Regulations Unless otherwise indicated, all citations to the statute are references to the Tariff Act of 1930 (the Act), as amended. In addition, unless otherwise indicated, all citations to the Department's regulations are to the regulations codified at 19 CFR part 351 (2001). The Department has conducted this administrative review in accordance with section 751 of the Act. Background The company covered by this new shipper review of the antidumping duty order on petroleum wax candles from the PRC is Shanghai New Star Im/Ex Co., Ltd. (New Star). On January 24, 2002, the Department of Commerce (the Department) published the preliminary results of this new shipper review. See Notice of Preliminary Results of Antidumping Duty New Shipper Review: Petroleum Wax Candles from the People's Republic of China, 67 FR 3478 (January 24, 2002) (Preliminary Results). The merchandise covered by this order consists of petroleum wax candles as described in the "Scope of Review" section of the Federal Register notice. The period of review (POR) is August 1, 2000 through January 31, 2001. We invited parties to comment on our Preliminary Results. On February 13, 2002, we received a timely submission of publicly available information on the surrogate values for petroleum wax candles (Factor Values Submission) from the National Candle Association, petitioner in this proceeding. On February 24, 2002, we received case briefs from New Star and petitioner. On March 4, 2002, we received rebuttal briefs from New Star and petitioner. Throughout this proceeding, New Star has claimed it is affiliated with its U.S. importer, Peak Candles, LLC. As described in more detail below, we have determined that there was no affiliation at the time of the sales transaction between New Star and the U.S. importer. As such, the U.S. importer is not a "respondent" in this review. However, consolidated case and rebuttal briefs were filed on behalf of both of these parties. Therefore, to make clear we are addressing both parties comments, we are using the term "respondents" rather than "respondent" in the "Discussion of Comments" section below. On April 12, 2002, the Department issued its notice of the extension of time limit for the final results of the antidumping new shipper review to May 30, 2002. See Petroleum Wax Candles from the People's Republic of China: Notice of Extension of Time Limit for Final Results of the Antidumping New Shipper Review, 67 FR 19160 (April 18, 2002). On May 7, 2002, the Department held a public hearing addressing issues brought up in the case and rebuttal briefs. Discussion of Comments Comment 1: Affiliation of Exporter and U.S. Importer A public summary of petitioner's and respondents' arguments on affiliation follows. For full summaries of the parties' arguments, which include business proprietary information, see Petroleum Wax Candles from the People's Republic of China (PRC): Analysis of the Relationship and Treatment of Sale between Shanghai New Star Im/Ex Co., Ltd. and Peak Candles, LLC (May 30, 2002) (Final Affiliation Memorandum). Petitioner argues that the Department's preliminary finding that respondents were unaffiliated at the time of the U.S. sale and that the U.S. price should be based on an export price (EP) analysis is supported by substantial evidence on the record and is in accordance with law. Petitioner argues that Peak Candles, LLC did not exist and could not be affiliated at the time of the single sale during the POR. Petitioner maintains that New Star was neither legally nor operationally in a position to exercise restraint or direction over Peak Candles, LLC prior to, or at the time of, the sale because Peak Candles, LLC did not exist as a legal entity until after the sale occurred. Petitioner also argues that New Star and Mr. Quartano were not affiliated at the time of the single sale to Mr. Quartano. Petitioner notes that the only sale during the POR was made by New Star to Mr. Quartano, who was conducting business under the name Peak Candle Company, LLC, which is legally distinct from Peak Candles, LLC. Petitioner alleges that Mr. Quartano did not conduct his business under the "Peak Candles, LLC" name until after the sale. Petitioner claims that the Customs Entry Summary does not list "Peak Candles, LLC" as the U.S. importer of record, and that the sales invoice and packing list show the U.S. purchaser's name as "Peak Candle Company, LLC." Petitioner further contends that, in order to determine affiliation, the Department must examine relationships at the time of sale. Petitioner maintains that the respondents have not submitted any reliable evidence to show that either New Star or Mr. Li Shi Liang (hereinafter Mr. Li), who is the chairman and co-owner of New Star, were legally or operationally in a position to exercise restraint or direction over Mr. Quartano prior to or on the date of the first sale to the United States. Petitioner holds that the only evidence respondents have presented relates to New Star's, or Mr. Li's, relationship with the later-incorporated Peak Candles, LLC, not Mr. Quartano. Petitioner points out that, while respondents have asserted that New Star engaged in negotiations with Mr. Quartano prior to the sales invoice date, they argue that no evidence of these negotiations is on the record. Petitioner also argues that, even after the sale, New Star and Peak Candles, LLC did not come under common control through equity investment. Petitioner alleges that the evidence in its entirety is simply lacking in showing that New Star was "operationally in a position to exercise restraint or direction" over Peak Candles, LLC, or over Mr. Quartano, due to Mr. Li's equity ownership interest in Peak Candles, LLC. Petitioner argues that Peak Candles, LLC's Operating Agreement and a purported Exclusive Representation Agreement are insufficient to show an affiliation between it and New Star. Petitioner argues that proprietary terms of the Operating Agreement fail to show that New Star was legally or operationally in a position to exercise restraint or direction over Peak Candles, LLC. Furthermore, petitioner alleges, this agreement was executed after the date of sale between New Star and Mr. Quartano, and, thus, cannot show an affiliation between New Star and Mr. Quartano at the time of the sale. Petitioner also points to the alleged effective date of the Exclusive Representation Agreement between New Star and Peak Candles, LLC, stating that this agreement is not indicative of control at the time of the sale. Respondents argue that New Star and Peak Candles, LLC were affiliated during the POR and further that the transaction between them should be reviewed on a constructed export price (CEP) basis. Respondents contend that the evidence on the record reflects that Mr. Li could control Peak Candles, LLC. According to respondents, the definition of "control" does not require a finding that: a party actually compelled or restrained commercial actions; a party can compel or restrain commercial actions; or that the "control" be enforceable. Rather, respondents hold, one must simply be in a position to exercise restraint or discretion. Respondents argue that, as part of his capital contribution to Peak Candles, LLC, Mr. Li was to provide assistance in locating acceptable Chinese suppliers and assistance in quality control and that he did both. Respondents also point to a provision of the Louisiana Revised Statutes ("R.S.") which states the following with respect to contributions to capital of a limited liability company (LLC): The contribution of a member to a limited liability company may take the form of cash, property, services rendered, or a promissory note or other binding obligation to contribute cash or property or to perform services. In addition, respondents state that the reason the Operating Agreement did not require the cash portion to be contributed until October 2001 was because the parties to the agreement themselves determined that it was not necessary to put money in up front until it was needed. With respect to the Operating Agreement, respondents state that the Department thought it significant that this agreement was signed after both the invoice date and shipment date from New Star to Peak Candle Company, LLC. Respondents argue that the Department, belying commercial and legal realities, is thus setting the precedent that by law the Operating Agreement could not have formed a basis of control because it was not dated until six days after the invoice date-even though it was still signed within the POR. The fact that the Operating Agreement simply happened to be signed after the invoice date is not dispositive, according to respondents, because the agreement between the parties was reached in 2000. With respect to the authority provided in the Operating Agreement, respondents note the Department stated that this agreement does not provide Mr. Li with any authority legally or operationally to exercise restraint or direction over Peak Candles, LLC with regard to the sale at issue. Respondents argue that paragraph three of the Articles of Organization for Peak Candles, LLC states that: Management of the day-to-day affairs, of the limited liability company, shall be conducted by a manager who may or may not be a member and who shall be elected by the members(s)... (emphasis added by respondents). Thus, according to respondents, it is clear that Peak Candles, LLC could have a manager who is not a member and that the Department would not be likely to hold that neither member of Peak Candles, LLC had "control" over the company when the manager was selected by the members. With respect to sourcing and pricing decisions, respondents point out that the Department recognized in its preliminary analysis that it was informed that all sourcing and pricing decisions were made jointly between New Star and Peak Candles. Respondents note, however, that the Department stated it believed respondents' claims lacked specificity and at best merely conflicted with the evidence upon which the Department relied. Respondents maintain that the actions of the parties, the exclusivity agreement, and Mr. Li's ownership of five percent of New Star all provide substantial evidence that the parties were affiliated, and that they intended to be affiliated, at the time of the sale. Department's Position: The record in this case is clear that there is no documentary evidence that could serve as a basis upon which to consider affiliation. In fact, Peak Candles, LLC was not incorporated, nor was the Operating Agreement signed, until after the date of invoice and the date of shipment of the subject merchandise from New Star to Mr. Quartano. Moreover, even if the Department were to consider intent in determining affiliation, neither party was able to produce any evidence (letter, faxes, notes, memoranda, etc.) that would indicate an intent to become affiliated. In addition, Mr. Li's capital contribution to Peak Candles, LLC was not made until well after the sale at issue and the end of the POR. Accordingly, the material terms of the sale from New Star to Peak Candles, LLC had been established prior to the effective date of the Operating Agreement, and prior to any capital contribution by Mr. Li to Peak Candles, LLC. Therefore, the absence of an actual capital contribution during the POR further supports a conclusion that Mr. Li was not in a position to exercise control over Peak Candles, LLC at the time of the sale from New Star to Mr. Quartano. While we do not disagree that capital contributions can be made in non- monetary forms, the Department requires some documentation regarding how the parties agreed to value these non-monetary contributions and whether or not these non-monetary contributions were indeed contributed. Regarding Mr. Li's role in seeking out suppliers, the cost verification report indicates that Mr. Frank Lee of New Star originally contacted the factory about the possibility of producing an order of candles. See Producer's Cost Verification Report, at page 2. After inspecting samples, according to the report, Mr. Lee reported back to Mr Li at New Star. Therefore, the record evidence indicates that Mr. Lee, not Mr. Li, made the contact with the supplier. The fact that Mr. Li may have sought out suppliers or handled quality control is not documented on the record, and, thus, whether or not these services constituted a capital contribution has not been demonstrated. These are the same or similar services that any exporter wishing to sell merchandise to the United States would likely perform; thus, absent some evidence of an agreement on the value of these services as capital contributions, and evidence that they were indeed contributed, we cannot conclude that they serve as evidence of affiliation. With regard to respondents' argument that the definition of "control" does not require a finding that a party actually compelled or restrained commercial actions, but rather that the party must simply be in a position to exercise restraint or discretion, we disagree that Mr. Li's relationship with Peak Candles, LLC at the time of this sale was such that he was in a position to impact the latter's ". . .decisions concerning production, pricing, or cost." See Preamble to the Regulations. Although Mr. Li was involved in the negotiations for this single sale of candles to Mr. Quartano, such negotiation falls far short of the factors listed in the definition of "affiliated persons" and "affiliated parties" in section 351.102(b) of the Department's regulations, which the Secretary will consider in determining whether control over another person exists: corporate or family grouping; franchise or joint venture agreements; debt financing; and close supplier relationships. As demonstrated by petitioner, the Department has in the past found that the existence of an exclusivity agreement does not, by itself, prove that an exporter or foreign producer and its distributor are affiliates, even if a distributor bought all of its merchandise from a single supplier. See, e.g., Notice of Sales at Less Than Fair Value: Melamine Institutional Dinnerware Products From Indonesia, 62 FR 1719 (January 13, 1997) (Dinnerware from Indonesia). Additionally, as petitioner states, in cases where the Department did find control, its findings were based on evidence of other substantial financial connections, as well as significant contacts with U.S. customers, in addition to the existence of an exclusivity agreement. See, e.g., Ta Chen v. U.S. Furthermore, the Operating Agreement for Peak Candles, LLC does not provide Mr. Li with any authority legally or operationally to exercise restraint or direction over Peak Candles, LLC with regard to the sale at issue in this new shipper review since it was not signed until after the sale. The exclusivity agreement between the two parties did not become effective until after the first and only sale to the United States and after the POR. Thus, this agreement has no bearing on New Star's control over Peak Candles, LLC, at the time of the sale. Further, although respondents' claim that negotiations between the two companies were fully ongoing at the time of this sale, respondents could provide no documentation (i.e., facsimiles, e-mails, memoranda, notes, etc.) to support this assertion. In addition, while we do not disagree that the Department has examined other factors to determine whether there is affiliation, there is no evidence in this case that at the time of sale there was anything more than a standard business relationship between New Star and Mr. Quartano. With respect to respondents' argument concerning the timing and form of payment, we do not find the fact that New Star sold the candles without a letter of credit or other form of payment assurance to be dispositive of affiliation. First, respondents did not cite any authority to support their contention that a foreign company would not make a sale to an unaffiliated party in the United States without assurance of payment. Second, we consider that it would be just as reasonable to assume that a company, which is interested in entering a market and which is only making a single sale to enter the market and which is not incurring a major financial obligation in making the sale, would take the risk and not require absolute assurance of payment at the time of the sale. Finally, respondents' claims that Louisiana law supports a finding that Peak Candles, LLC was indeed a functioning company at the time of the sale have no bearing on this new shipper review. This review is governed by the Act and 19 C.F.R. Part 351. In Department proceedings, matters of fact and matters of state law are interpreted through the lens of federal law. In the instant case, respondents' claim that, under Louisiana law, Peak Candles, LLC was a functioning company at the time of the sale are not supported by the facts. Thus, respondents' state law arguments are not dispositive of the affiliation issue. Thus, for purposes of these final results, we do not consider respondents' claim of affiliation at the time of the sale to be as credible as the documentary evidence on the record. At the time of this sale from New Star to Mr. Quartano, Peak Candles, LLC was not yet officially in existence as a company, as evidenced by the effective dates of the Operating Agreement and Articles of Incorporation. Therefore, the record evidence regarding New Star's relationship with Peak Candles, LLC does not indicate that New Star was in a common control relationship with Peak Candles, LLC, under section 771(33) of the Act, at the time of the sale. Because we have found that New Star and Peak Candles, LLC, were not affiliated at the time of the sale to the United States, the Department has treated the sale by New Star to the United States market as an EP sale for these final results. Furthermore, because much of the information which the Department considered in its analysis is business proprietary, the Department's full analysis is set forth in the Final Affiliation Memorandum. Comment 2: Time Periods for Factor Values Petitioner argues for the use of two alternative periods from which to draw Indian import statistics for purposes of valuing several factors of production (wicks, color, scent, plaster, and additive) and certain packing materials (cardboard boxes, plastic bags, and tape). Petitioner notes that the time period covered by the Indian import statistics used by the Department in the Preliminary Results was April 2000 through February 2001, while the POR is from August 2000 through January 2001. See Factor Values Used for the Preliminary Results of the New Shipper Review of Petroleum Wax Candles from the People's Republic of China (January 15, 2001) (Prelim Factor Values Memo). In the first alternative, petitioner suggests using Indian import statistics from the actual POR covering the months of August 2000 to January 2001. This recommendation, petitioner claims, is consistent with the Department's preference to use values contemporaneous with the POR, where possible. See Issues and Decision Memorandum for the Final Results of the Antidumping Duty Administrative Review of Potassium Permanganate from the People's Republic of China - January 1, 1999 through December 31, 1999 (Potassium Permanganate) at Comment 15 and Issues and Decision Memo for the Administrative Review of Manganese Metal from the People's Republic of China - February 1, 1999 through January 31, 2000; Final Results (January 15, 2001) (Manganese Metal) at Comment 8. Petitioner further argues that since Indian import statistics are available for the specific POR in this case, the use of values derived from this period is preferable to a period that covers months outside of the POR. Therefore, petitioner proposes using Indian import statistics for the six months covered by the POR as provided in its Factor Values Submission. Petitioner points to exhibits in that submission which contain POR Indian import data for wicks, color, scent, plaster, additive, cardboard boxes, plastic bags, and tape. A second alternative time period from which to take factor values, petitioner suggests, is based on the invoice dates for purchases of certain raw materials. Petitioner maintains that this period of time represents the period within the POR during which the PRC candle factory would have had to purchase its materials used in the manufacture of the candles subject to review. Petitioner argues that, since Indian import statistics are available for the relevant period within the POR, the use of these values is preferable to the period used by the Department in the Preliminary Results. In support of its argument, petitioner points out that there was only one U.S. sale of candles during the POR and that all of the candles included in this sale were produced by the respondents' PRC candle producer. Petitioner further references an exhibit in its Factor Values Submission which contains the relevant statistics. In a general response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. In response to petitioner's suggestion that the Department use surrogate data for the actual POR, August 1, 2000 through January 31, 2001, respondents state that this data is not drastically different from the data used by the Department in the Preliminary Results, and accordingly should not be used. Respondents note that petitioner further suggests the use of data from a single month because there was a single batch of candles; specifically, respondents note that petitioner proposes either December 2000 or January 2001. See Petitioner's Case Brief, at page 19. In response, respondents argue that, because this is only one month of data, there is a greater chance for abnormalities in the data and that, in using surrogate values, it is important to use a wide range of data. As an example, respondents ask how one would know that the market in China and the market in India would act the same for one month of imports. Respondents maintain that the sample size is too small to be statistically reliable and that, in using a period of several months, any drastic increases or decreases in imports will be averaged out. Department's Position: We agree with petitioner that the use of Indian import statistics corresponding to the months of the POR is appropriate, but we disagree that narrowing this period any further is warranted. In the instant case, petitioner has provided surrogates which are more contemporaneous with the POR (August 2000 to January 2001) than what the Department used in the Preliminary Results (April 2000 - February 2001). In addition, the source of petitioner's data, as provided in its Factor Values Submission, has been used uncontroversially before by the Department. We note that in Potassium Permanganate, the Department stated: "...we have based the surrogate value on Indian import statistics because, unlike the IEA data from 1996, the import statistics are contemporaneous with the POR. See Department Memorandum: Manganese Metal 1999-2000, at Comment 8 stating that '{t}he Department prefers, where possible, to use surrogate values which are contemporaneous with the POR.'" We, however, disagree with petitioner's second alternative, of using a shorter time period based on the invoice dates for purchases of certain raw materials, as a time frame from which to draw upon surrogate values. Here, we agree with respondents that using a very short time period within the POR could tend to produce results that are less reliable. As noted above, it is the Department's practice to use, wherever possible, surrogate values that are contemporaneous with the POR. See Potassium Permanganate and Manganese Metal. Using a longer time period mitigates the effect of any anomalies in the data and produces more predictable results. Therefore, for the final results, we have used the updated data as provided in petitioner's Factor Values Submission, but continue to use, as a time frame, data encompassing the POR. In addition, for the final results, we have used the Indian import data for wicks, color, scent, plaster, additive, cardboard boxes, plastic bags, and tape, as found in petitioner's Factor Values Submission. We also disagree with respondents' general comment that petitioner's arguments on valuation should be summarily dismissed. Petitioner's Factor Values Submission was timely and filed in accordance with section 351.301(c)(3) of the Department's regulations. In addition, petitioner's argumnets concerning factor valuation were also timely. Therefore, the Department is obligated to to analyze the Factor Values Submission and to address petitioner's arguments. Although respondents made this same argument with respect to all of the factor valuation arguments made by petitioner, we have only addressed respondents' general argument in this "Department's Position," and not separately for each of the remaining comments. Comment 3: Factor Value For Coal Petitioner notes that, in the Preliminary Results, the Department used the value for "Steam Coal for Industry" as reported in Energy, Prices and Taxes, First Quarter 2000, published by the International Energy Agency ("IEA"). See Prelim Factor Values Memo, at page 5 and Attachment 12. Petitioner recommends that Indian import statistics, as provided in its Factor Values Submission, be used for valuing coal. In support of its argument, petitioner states that the Department has used Indian import statistics to value coal in other cases. See Department Memorandum (Potassium Permanganate) at Comment 15 and Sebacic Acid From the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 65 FR 49537 (August 14, 2000). In Potassium Permanganate, petitioner maintains, the Department decided to use Indian import statistics rather than IEA data for several reasons, including the fact that the import data was contemporaneous with the POR and the IEA data was not. Petitioner alleges that the instant review presents the same issue, i.e., that the IEA data used by the Department are steam coal prices from 1996, while Indian import statistics are available for the POR, or alternatively, the period within the POR, as recommended by petitioner in Comment 2. In addition, petitioner argues that, although the Department used the value for steam coal in the Preliminary Results, the record does not contain information establishing that steam coal is the type of coal used. Petitioner argues that, if steam coal was not in fact the type of coal used, then the Department should resort to import data for "others coal" under Indian HTS item 27011909. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's Position: We agree, in part, with petitioner. In the Preliminary Results, the Department stated: "To value coal, we used the value for "Steam Coal for Industry" reported in Energy, Prices and Taxes, First Quarter 2000, published by the International Energy Agency. The reported price for this coal is 639 rupees per metric ton. . .As this data is reported for 1996, we used the WPI inflator to adjust the reported price for steam coal to reflect inflation through the POR. . ." See Prelim Factor Values Memo, at page 5. Thus, the use of Indian import statistics as surrogate values, in this case, would be preferable because the information from the source, Reserve Bank of India, is reliable, publicly available, and contemporaneous with the POR. In addition, using Indian import statistics contemporaneous with the POR negates the necessity of inflating this surrogate value, as was done for the Preliminary Results, and, thus, increases the reliability of the data being used. However, the Department does not agree with petitioner in re-classifying the type of coal used as a surrogate. There is no reason for the Department not to rely on steam coal since steam coal has been considered by the Department in the past to be the type of coal used in industrial production (other than for industries in which the coal is consumed in production). See, e.g., Factor Values Memorandum for the New Shipper Reviews of Freshwater Crawfish Tail Meat from the People's Republic of China for China Kingdom Import & Export Co., Ltd., Weishan Fukang Foodstuffs Co., Ltd., and Nantong Shengfa Frozen Foods Co., Ltd.-September 1, 1999-March 31, 2000, at 3 (April 10, 2001); Sulfanilic Acid from the People's Republic of China; Preliminary Results and Preliminary Partial Rescission of Antidumping Duty Administrative Review, 66 FR 47006 (September 10, 2001); Notice of Preliminary Results of New Shipper Antidumping Administrative Review: Glycine from the People's Republic of China, 65 FR 54214 (September 7, 2000); Valuation of Factors of Production Memorandum for the Final Results of the Seventh Administrative Review of Certain Helical Spring Lock Washers from the People's Republic of China, (January 15, 2002). Unless there is an indication in the questionnaire responses, at verification, or from other factual information on the record that another type of coal would be used in the production of the product at issue, the Department uses surrogate values for steam coal to value the coal input factor. Here, petitioner has not supported its contention that the use of "steam coal" is inappropriate, or to explain fully why its proposed alternative of "others coal" displays characteristics more suitable to the production of candles. Therefore, for the final results, we used India import statistics for the POR, as submitted in petitioner's Factor Values Submission, but continued to use "steam coal" as the surrogate classification. Comment 4: Inflation Adjustment For Electricity In the Preliminary Results, petitioner notes, the Department used the Indian Wholesale Price Index (WPI) inflator to adjust the reported price for electricity to reflect inflation through the POR. Petitioner recommends that the Department not use the overall Indian WPI as an inflator, but rather use the Indian WPI for electricity. In support of its argument, petitioner argues that the Department has used an industry- specific WPI inflator in other cases. See Potassium Permanganate. In Potassium Permanganate, petitioner maintains, the Department agreed that the electricity value should be inflated using an industry-specific index. Further, petitioner holds that the Department noted in that case that this inflator was also used in several other cases as well. Id. at Comment 17. Petitioner, therefore, asks that the Department use the Indian WPI index for electricity from the Reserve Bank of India, as provided in petitioner's Factor Values Submission. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's Position: We agree with petitioner that the Reserve Bank of India's WPI for electricity, as provided in petitioner's Factor Values Submission, is preferable to the overall International Financial Statistic's Indian WPI to inflate the electricity surrogate value. In the Preliminary Results, the Department noted: "We used the most current information for wholesale price indices (WPI) in India and producer price indices (PPI) in the United States as published in the International Financial Statistics of the International Monetary Fund, to determine the adjustment for inflation." The Department also noted: "To value electricity, we used the value for electricity reported in Energy, Prices and Taxes, First Quarter 2000, published by the International Energy Agency. . .As this data is reported for 1997, we used the WPI inflator to adjust the reported price for electricity to reflect inflation through the POR." See Prelim Factor Values Memo, at pages 1- 2 and 4, respectively. In the instant review, petitioner proposes inflating the IEA surrogate for electricity, as was used in the Preliminary Results, with the WPI for electricity from the Reserve Bank of India, stating that the Department had used industry specific indices in a past case. See Petitioner's Case Brief at 22 citing Potassium Permanganate. In that case the Department noted: "We agree with petitioner that the electricity value should be inflated using an industry specific index. Thus, we used the industry specific index published by the Reserve Bank of India to inflate the electricity value as we did in Manganese Metal and Aspirin. Industry specific indices are narrower and more accurate with regard to prices in each respective industry than country-wide indices based upon a multitude of industries, such as a country's wholesale price index." The Department also notes that it has opted to use an electricity- specific index as the inflator in other cases. See, e.g., Manganese Metal from the People's Republic of China: Final Results of Antidumping Administrative Review, 65 FR 30067 (May 10, 2000) and accompanying Issues and Decision Memorandum at Comment 5 (Manganese Metal 1998-1999); see, also, Bulk Aspirin from the People's Republic of China: Final Determination of Sales at Less Than Fair Value, 65 FR 33805 (May 17, 2000) and accompanying Issues and Decision Memorandum at Comment 6. In addition, the inflator provided in petitioner's Factor Values Submission appears to be neutral with respect to the class and size of user. See Factor Values Submission, Exhibit 10 - "II.c. Electricity." We also note that the source of the data, i.e., the Reserve Bank of India, is being used elsewhere in the instant case. Therefore, for the final results, we have used the electricity-specific index to inflate the electricity surrogate. Comment 5: Factor Identification For Additive Petitioner requests that the Department alter its selection of additive and replace its current identification of stearic acid with a more appropriate compound. Petitioner alleges that, during the cost verification of the producer, the Department learned of a "material" factor of production that had not been previously reported. This material factor, petitioner argues, was referred to in the Department's Factor Value Memorandum as "additive," the chemical composition of which was unknown to the personnel from the candle factory who attended the cost verification. See Antidumping Review of Petroleum Wax Candles (candles) from the People's Republic of China (PRC) (A-570-504): Cost Verification Report for [BPI Chinese Producer] (January 15, 2002) (Cost Verification Report), at page 5. For several reasons, petitioner believes that stearic acid is not the additive used by the PRC producer in this case. Petitioner points to an alternative additive which it believes is the additive used by the PRC producer. See business proprietary information (BPI) version of Petitioner's Case Brief, at pages 23 and 24. Petitioner, thus, requests that the Department replace its current identification of stearic acid with the additive it proposes for purposes of the final results. Petitioner, however, notes that it was unable to provide an alternative value for this material factor due to the limited time available since the discovery of this factor by the Department during verification. Petitioner requested that, if the Department determines that petitioner's view on this matter has merit and considers re-identifying this factor, the Department provide petitioner an extension, applying only to public information on this factor, of the normal deadline for the submission of proposed factor values so that it can provide a surrogate value. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's Position: We disagree with petitioner that stearic acid should not be used to classify the additive used in the production of a certain type of candle. In the Preliminary Results, the Department noted that the producer did not know the chemical composition of the additive used in the production of the subject merchandise, but the producer did inform the Department that the additive was used for giving certain candles better cohesion and shapeliness, and for raising the melting points of certain candles. After researching the issue, we determined that, according to the properties the additive imbued to the candles as described in the Cost Verification Report, it was probable that the additive was stearic acid. See Prelim Factor Values Memo, at page 3. Although petitioner argues for an alternative additive, there is no clear information on the record that leads us to conclude that we should use this alternative additive. In addition, petitioner has provided no documentation in support of its argument. Because we were not able to determine, based on the record of this review, that the alternative additive suggested by petitioner was more appropriate than the additive chosen by the Department, we did not provide petitioner with additional time to submit valuation information. See also the business proprietary discussion in the Department's Final Factor Values Memo. Thus, for the Final Results, we have continued to use stearic acid to classify the additive discovered at verification. Comment 6: Percent Factors For Factory Overhead, Selling, General & Administrative Expenses, and Profit Petitioner argues that the Department should value factory overhead, selling, general & administrative expense (SG&A), and profit, using survey data from Indian companies in the business of processing and manufacturing metals, chemicals and products thereof, for the period 1999-2000 as published by the Reserve Bank of India. While petitioner acknowledges that the Department used such survey data from the Reserve Bank of India in its preliminary results, it argues that this data simply needs to be updated to account for more recent publications. Petitioner maintains that the 1999-2000 data it proposes is seven years more recent than the data used in the Preliminary Results, and thus is much more contemporaneous with the POR. See Prelim Factor Values Memorandum, at pages 6 and 7 and Attachment 14. In support of its argument, petitioner specifically points out that these updated data were used by the Department in a recent review on cased pencils from the PRC. See Certain Cased Pencils Memo, at page 13. Petitioner argues that a second alternative available to the Department is financial information for 1999-2000 from a survey of Indian companies in the chemicals industry. Petitioner suggests the use of this data, as provided in its Factor Values Submission; although it states that it is unaware of any investigation or review in which the Department has used the document in which this data appears and, thus, there is no precedent for the use of this document for purposes of factor valuation. Petitioner notes that the source of this data is a publication entitled Selected Financial Statistics, Public Limited Companies, 1974-75 to 1999-2000 (Selected Industries), which is also issued by the Reserve Bank of India. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's Position: We agree, in part, with petitioner. In particular, we agree that using more recent survey data from Indian companies in the business of processing and manufacturing metals, chemicals and products thereof, for the period 1999-2000 as published by the Reserve Bank of India, is preferable to that used in the Preliminary Results for valuing these factors. See Prelim Factor Values Memo, at pages 6 and 7. Petitioner rightfully points out that this data is more recent than the data used in the Preliminary Results and, thus, more contemporaneous with the POR. However, we disagree with petitioner's second alternative of using comparable financial information for 1999-2000 from a survey of Indian companies in the chemicals industry to value factory overhead, SG&A, and profit. Since neither the Department nor the parties have been able to obtain surrogate information for valuing overhead, SG&A and profit that pertains specifically to the candle industry, the Department must rely upon surrogate information derived from broader industry groupings. Both the survey that we used in the Preliminary Results and the first alternative proposed by petitioner encompass broader industry groupings. However, the Department has relied upon the survey that we used in the Preliminary Results in numerous past investigations and reviews. See, e.g., Sulfanilic Acid from the People's Republic of China; Preliminary Results and Preliminary Partial Rescission of Antidumping Duty Administrative Review, 67 FR 31773 (May 10, 2002); and Certain Cased Pencils From the People's Republic of China; Preliminary Results and Rescission in Part of Antidumping Duty Administrative Review, 67 FR 2406 (January 17, 2002). Thus, to depart from this survey would require a clear demonstration that the second alternative source provides a more appropriate reflection of overhead, SG&A, and profit in the industry under review. While petitioner has argued for the Department to use this second survey as an alternative source for valuing overhead, SG&A, and profit, it has not provided any concrete analysis in support of its argument that could lead the Department to conclude that this alternative source more appropriately reflects the overhead, SG&A and profit in the candle industry than the survey already in use by the Department. Accordingly, for the Final Results, we used the first alternative's updated data, as provided in petitioner's Factor Values Submission, but did not use the survey data as proposed in petitioner's second alternative. Comment 7: Number of Labor Hours Incurred in Candle Production Petitioner argues that the Department should use an alternate daily number of hours to determine the total labor hours per kilogram of candle. Petitioner notes that this proposed change does not involve an alternative surrogate value for the hourly cost of labor in a market economy but rather this proposed change involves a change in the number of labor hours that the Department has assumed is required per each candle type in this review. Petitioner alleges that the Department made an assumption in the number of labor hours used because the Department was unable to verify the number of hours. Petitioner explains that while respondents provided, and were able to support at verification, the number of workers involved in producing the subject merchandise, the number of days worked by each worker, and the functions of each worker, respondents were not able to support the number of hours worked each day by the workers. Therefore, petitioner maintains, an assumption was made that each worker put in a certain number of hours per day. See Cost Verification Exhibit 12. Petitioner alleges that, because this specific fact could not be verified one way or another by the Department, other facts available should be applied. Petitioner proposes that the Department use the average hours worked per week in India, which is the surrogate market economy country chosen by the Department in this review, as provided in petitioner's Factor Values Submission. Petitioner states that the source of this information was the 1999 Yearbook of Labor Statistics as published by the International Labour Organization. Petitioner explains that this data shows that, in the most recent year for which data was provided, the average weekly hours worked by employees in the manufacture of chemicals and chemical, petroleum, coal, rubber and plastic products was 46.6, translating into average daily hours of 9.3. Thus, petitioner proposes that this daily number of hours be used in the labor cost formula to determine total labor hours per kilogram of candle. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's Position: We disagree with petitioner that the Department should use an alternate daily number of hours to determine the total labor hours per kilogram of candle produced. In its cost verification report, the Department noted: "The number of hours reported on the attendance log agreed with the number of hours reported in the questionnaire response. We reconciled the payroll log with the company's financial statements using a voucher and the cost of manufacturing and cost of sales accounts. [Company] officials told us that there was no way of reconciling the hours reported on the attendance log with the payroll log, which does not record the number of hours for which wages are paid." See Antidumping Review of Petroleum Wax Candles (candles) from the People's Republic of China (PRC) (A-570-504): Cost Verification Report for [BPI Chinese Producer] (Cost Verification Report), at page 8. Although the number of hours, per worker per day, was a number estimated and reported by respondents, we have no reason to believe the figure provided by respondents is aberrational given the Department's other checks with respect to labor. Id. at Exhibit 12. In addition, we disagree with petitioner's rationale that the number of labor hours worked per day per worker in India is representative of that found in China, simply because it is the surrogate country. India is the Department's choice for valuing factors, but it is not appropriate to use India to determine the correct factors. Indian data might provide an appropriate surrogate factor if the Department concluded that partial facts available were warranted, but we have not. The respondents satisfied the Department's verification team with its labor calculations. Moreover, for valuing labor, the Department does not even use a surrogate country. Rather, the Department uses wage rates obtained from a regression analysis. Also, in a recent case, the Department rejected a similar request to change the labor factor. See Notice of Final Determination of Sales at Less Than Fair Value: Folding Metal Tables and Chairs from the People's Republic of China, 67 FR 20090 (April 24, 2002) and accompanying Issues and Decision Memorandum for the Final Determination in the Less Than Fair Value Investigation of Folding Metal Tables and Chairs from the People's Republic of China-October 1, 2000-March 31, 2001, at Comment 20 (April 24, 2002). Therefore, for the Final Results, we have continued to use the same number of labor hours per kilogram of candle produced as was used in the Preliminary Results. Comment 8: Ocean Freight Petitioner argues that the Department should use a higher ocean freight cost. It states that the values for movement costs used by the Department are too low because they are less when summed than the total movement cost implied by respondents' entry summary. See Antidumping Review of Petroleum Wax Candles (candles) from the People's Republic of China (PRC) (A-570- 504): Sales Verification Report for Shanghai New Star Im/Ex Co., Ltd., (January 15, 2001) (Sales Verification Report) at Exhibit 7, which petitioner also attaches to its brief. According to petitioner, the total movement expenses calculated by the Department should actually be higher than those implied by the entry summary, because the Department calculated expenses for transporting respondents' candles from its factory to the port of Shanghai and then to the U.S. port, whereas the movement expenses implied by the entry summary include only the costs of transporting the candles from Shanghai to the U.S. port. Petitioner singles out the Department's choice of a surrogate value for ocean freight as the primary problem. According to petitioner, the surrogate value for ocean freight used by the Department is much lower than both the ocean freight cost implied by respondents' entry summary as well as the ocean freight plus insurance value reported by Census for PRC candle entries. Because petitioner believes that the insurance costs component of the Census value is insignificant, petitioner recommends using the Census data as a surrogate value for ocean freight. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's Position: We disagree with petitioner. Because ocean freight was included in the terms of sale, it was paid for by New Star and included in the invoiced amount. Because the ocean freight expense was not incurred, or paid, in a market currency, we had to determine a surrogate value. To determine the surrogate value for the ocean freight, we followed our standard methodology. We obtained price quotes for the freight incurred by respondents from a market economy carrier, Maersk/Sea Land and Transoceanic Shipping Co., Inc., a method we have followed in numerous previous cases (see, e.g., Notice of Final Determination of Sales at Less Than Fair Value: Saccharin from the People's Republic of China, 59 FR 58818 (November 15, 1994); Final Determination of Sales at Less Than Fair Value: Coumarin From the People's Republic of China, 59 FR 66895 (December 2, 1994); and Persulfates From the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, and Partial Rescission of Administrative Review, 64 FR 42912 (August 6, 1999)). The alternative sources for valuing ocean freight suggested by petitioner contain, as petitioner acknowledges, other expenses that cannot be factored out to isolate the ocean freight expense. Moreover, a mere assertion by a party that it believes the "other" expenses included in the total to be minor is not sufficient for the Department to find the suggested alternative a more appropriate surrogate than the one which has been used by the Department in the past. Accordingly, the Department has continued to use the freight quote from the market economy carrier. Comment 9: Foreign Port Brokerage, Handling, and Loading Expenses And Marine Insurance Petitioner argues that a value for marine insurance and for foreign port brokerage and handling should be deducted from U.S. price. Petitioner points out that, in respondents' questionnaire response, the claim was made that no costs were incurred for DBROKU (foreign brokerage and handling) or for MARNINU (marine insurance). Petitioner suggests, however, that these responses are mistaken, because, according to petitioner, "these activities and services are always and in every case undertaken or provided, without exception, when a product is shipped by ocean freight from an inland location in the PRC to a U.S. port." Petitioner maintains that it is unclear, from a review of the record, as to which party, New Star or Peak Candles, paid for these expenses, but that, unless the respondents are asked to provide clarification on this question, the Department should assume that the expenses are included in gross unit price. In response to petitioner's recommendations affecting the calculation of normal value, respondents argue that petitioner fails to demonstrate how the surrogate values used by the Department are not based on substantial evidence on the record or are not in accordance with the law. Respondents maintain that petitioner's recommendations are based only on an objective of raising the normal value, not in making it more accurate, and as such should be summarily dismissed by the Department. Department's position: We agree, in part, with petitioner. At verification, we learned that the following steps take place in the shipment of candles. New Star coordinates with the freight forwarder. The freight forwarder then makes arrangements for ocean shipment. New Star then arranges for the factory to ship candles to the freight forwarder. See Sales Verification Report, at 4. Because New Star incurred the ocean freight expenses, and because only New Star and the freight forwarder were involved in the ocean shipment, New Star must have also incurred foreign port brokerage, handling and loading costs in preparing the candles for shipment at the port, and loading the candles onto the ship. Because these costs were not separately incurred by New Star, the only documents that the Department at verification reviewed were the invoice from the freight forwarder and New Star's payment documentation. See Sales Verification Report at Exhibit 7 (freight documents). Thus, in the Preliminary Results, the Department made an oversight by not deducting foreign port brokerage, handling and loading expenses from U.S. price. We have corrected this for the final results, and have valued these expenses following our standard methodology, the average of the foreign brokerage and handling expenses reported in the questionnaire response of the U.S. sales listing submitted in Certain Stainless Steel Wire Rod From India; Preliminary Results of Antidumping Duty Administrative and New Shipper Reviews (63 FR 48184, September 9, 1998), adjusted for inflation to the POR. Regarding marine insurance, we disagree with petitioner that insurance is always included when a product is shipped by ocean freight from the PRC to a U.S. port. In the instant case, there is no evidence showing that the terms of the sale included marine insurance. Therefore, for the Final Results we did not make an adjustment for marine insurance. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final weighted-average dumping margin and the final results of this new shipper review in the Federal Register. __________________ __________________ Agree Disagree ______________________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________________ Date