65 FR 64664, October 30, 2000 A-570-846 AR/NSR 04/98-03/99 Public Document IA/I/2/TRK MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Final Results of the Antidumping Duty Administrative Review and New Shipper Review on Brake Rotors from the People's Republic of China - April 1, 1998, through March 31, 1999 Summary We have analyzed the comments of the interested parties in the 1998-1999 administrative review and the new shipper review of the antidumping duty order covering brake rotors from the People's Republic of China ("PRC"). As a result of our analysis of these comments, we have made changes in the margin calculations as discussed in the "Margin Calculations" section of this memorandum. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments by parties: Issue 1: Data from Another Segment of the Proceeding Issue 2: Request for Verification Issue 3: Applying the Separate Rates Test to Laizhou Hongda Issue 4: Treatment of Laizhou Hongda's U.S. Sales Issue 5: Factor Allocation Methodology Used by Respondents Which Also Produce Non-Subject Merchandise Issue 6: Considering the Use of Submitted Surrogate Values Issue 7: Surrogate Value Selection for Plastic Bags Issue 8: Calculation of the Surrogate Profit Ratio Issue 9: Surrogate Value Selection for Firewood Issue 10: Surrogate Value Selection for Labor Issue 11: Surrogate Value Selection for Foreign Inland Freight Background On December 29, 1999, the Department of Commerce ("the Department") published the preliminary results of the third new shipper review and preliminary results and partial rescission of the second administrative review of the antidumping duty order on brake rotors from the PRC. See Brake Rotors from the People's Republic of China: Preliminary Results of Third New Shipper Review and Preliminary Results and Partial Rescission of Second Antidumping Duty Administrative Review: Brake Rotors from the People's Republic of China, 64 FR 73007 (December 29, 1999). The products covered by this order are brake rotors made of gray cast iron, whether finished, semifinished, or unfinished, ranging in diameter from 8 to 16 inches (20.32 to 40.64 centimeters) and in weight from 8 to 45 pounds (3.63 to 20.41 kilograms). The period of review ("POR") is April 1, 1998, through March 31, 1999. We invited parties to comment on our preliminary results of review. The parties submitted publicly available information ("PAI") on March 10, 2000, and their original case briefs on March 24, 2000. Only the petitioner submitted a rebuttal brief on March 29, 2000. As a result of our decision to verify certain respondents in this proceeding, we postponed the final results in this case until October 24, 2000. See Brake Rotors from the People's Republic of China: Postponement of Final Results of Second Antidumping Duty Administrative Review and Third New Shipper Review, 65 FR 19359 (April 11, 2000). Parties were provided another opportunity to submit case and rebuttal briefs as a result of our decision to verify certain companies. The petitioner submitted another case brief on September 5, 2000. The respondents submitted only a rebuttal brief on September 13, 2000. On October 2, 2000, we placed on the record additional publicly available information for electricity and marine insurance for consideration in the final results. Neither party submitted comments on this additional information. There was no request for a hearing in this proceeding. Margin Calculations We calculated export price and normal value using the same methodology stated in the preliminary results, except as follows: 1. We used updated values from the Indian government publication Monthly Statistics of the Foreign Trade of India (Monthly Statistics) to value ball bearing cups, ferrosilicon, ferromanganese, steel scrap, iron scrap, limestone, steel strip, pig iron, lubrication oil, coking coal, tape, nails and paper cartons. See Comment 6, below, and October 24, 2000, Factors Valuation Memorandum for the Final Results ("surrogate value calculation memorandum"). 2. We used an import value from Monthly Statistics for plastic bags rather than the value of the material from which the plastic bags are made. See Comment 7, below, and surrogate value calculation memorandum. 3. We used the 1998 financial data of Jayaswals Neco Limited ("Jayaswals") and the 1998-1999 financial data of Kalyani Brakes Limited ("Kalyani") and Rico Auto Industries Limited ("Rico") to calculate surrogate ratios for factory overhead, selling, general and administrative ("SG&A") expense and profit. See Comment 8, below, and surrogate value calculation memorandum. 4. We used the value from the Food and Agricultural Organization ("FAO") of the United Nations' working paper, Wood Materials from Non-Forest Areas, to value firewood. SeeComment 9, below, and surrogate value calculation memorandum. 5. We used the updated value from the International Trade Administration website to value skilled, unskilled and packing labor reported by the respondents. See Comment 10, below, and surrogate value calculation memorandum. 6. We used a November 1999 average truck freight value based on price quotes from Indian trucking companies to value foreign inland freight and freight for materials used by respondents to produce the subject merchandise. See Comment 11, below, and surrogate value calculation memorandum. 7. We calculated a value-based marine insurance figure using public information from the less-than-fair value investigation of sulfur dyes from India in accordance with the Court of International Trade's ("CIT's") decision in Timken Company v. United States (Slip Op. 99-73, July 30, 1999). Based on the CIT's decision, the Department also utilized this method for valuing marine insurance in the Redetermination of the Final Results and Partial Termination of Antidumping Duty Administrative Review of Tapered Roller Bearings and Parts Thereof, Finished and Unfinished from the PRC. See surrogate value calculation memorandum. 8. To value electricity, we used data from the Indian publications 1995 Conference of Indian Industries: Handbook of Statistics and The Center for Monitoring Indian Economy and the methodology used in two recent final results involving non-market economy cases. (SeePersulfates from the People's Republic of China: Final Results of Antidumping Duty Administrative Review and Partial Rescission of Administrative Review, 65 FR 46691 (July 31, 2000), and Manganese Metal from the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 65 FR 30067, 30068 (May 10, 2000)). 9. We used an average value for lug bolts based on an average of data from two time periods from the Indonesian government publication Foreign Trade Statistical Bulletin. See surrogate value calculation memorandum. 10. We used an updated surrogate value for foreign brokerage and handling expenses reported in the 1997-1998 antidumping duty new shipper review of stainless steel wire rod from India. Seesurrogate value calculation memorandum. 11. We added an amount for loading and additional transportation charges associated with delivering coal to the factory based on June 1999 Indian price data contained in the periodicalBusiness Line. Discussion of the Issues Comment 1: Data from Another Segment of the Proceeding The Petitioner's Argument The petitioner argues that the Department should add to the record of these reviews the proprietary exhibits submitted by the Ministry of Machinery Industry ("MMI") to the Department in the original investigation (1) (i.e., the 5-year plans) and the MMI verification report. The petitioner disagrees with the Department's determination, in a letter dated September 10, 1999, that the above-mentioned exhibits do not have any direct relevance to the issue of government control of the export activities of the respondent companies involved in these reviews. The petitioner also claims that, in the preliminary results, the Department misquoted the September 10, 1999, letter, by stating that in this letter the Department also rejected the request to include the MMI verification report on the record of these reviews. The petitioner argues that the Department gave no reason, explanation or basis for its determination that the exhibits did not have any direct relevancy to government control of the export activities of the respondent companies in these reviews, and that the Department should reverse its determination not to include these proprietary exhibits on the record of these reviews. The petitioner contends that the exhibits provide evidence of de facto control of respondents' export activities by the PRC government since the time period of the original investigation, and that such control has continued throughout these reviews. The respondents did not comment on this issue. DOC Position We disagree with the petitioner that the Department incorrectly denied its request to place on the record of these reviews the business proprietary exhibits furnished by MMI and the verification report which discussed the Department's visit to MMI during the original investigation. The Court of International Trade ("CIT") has already upheld the Department's decision in the less-than-fair-value investigation ("LTFV") investigation that the MMI exhibits and verification report did not constitute evidence of PRC government control with respect to the respondents for which the Department granted separate rates in that segment of the proceeding. In fact, the CIT upheld our decision in that segment of the proceeding that the exhibits and report in connection with Department's visit to MMI was applicable only in examining the relationship MMI had with two respondents (i.e., the NORINCO- controlled companies). As was the case in the LTFV proceeding, we continue to find that both the MMI exhibits and verification report have no relevance to the respondents participating in these reviews. As for the petitioner's arguments that these documents provide evidence of de facto control of respondents' export activities by the PRC government since the LTFV investigation, the CIT has already determined, in litigation involving the segment of the proceeding that included these documents, that this information did not prevent brake rotor exporters from satisfying their burden of demonstrating de jure and de facto independence from the control of the PRC government. See The Coalition for the Preservation of American Brake Drum and Rotor Aftermarket Manufacturers v. The United States, 44 F. Supp. 2d 229, 246 (CIT, 1999), aff'd Ct. No. 99-1454 (CAFC, April 13, 2000)(unpublished). Therefore, there is no reason to believe that these same documents would lead the Department to a contrary conclusion in a later review. Comment 2: Request for Verification The Petitioner's Argument The petitioner argues that the Department should conduct verifications of all companies participating in these reviews, the MMI and the Ministry of Foreign Trade and Economic Cooperation ("MOFTEC"). The petitioner states that verification is the primary tool that the Department has to ensure that information provided in the questionnaire response is accurate and that, as a result, the calculation of the antidumping margin is as accurate as possible. The petitioner contends that the decision not to verify the companies and the government agencies in these reviews was an abuse of the Department's discretion to conduct verification, and contrary to the basic purpose of the statute which is to determine current margins as accurately as possible. The respondent did not comment on this issue. DOC Position On March 24, 2000, the petitioner modified its request that the Department verify all of the respondents participating in these reviews by limiting its request to include only the PRC exporters participating in these reviews which had never been verified in a prior proceeding, as well as their producers/suppliers. Based on the petitioner's amended request, the Department on March 29, 2000, agreed to conduct verification of the responses submitted by four of the nine respondents (i.e., Jilin Provincial Machinery & Equipment Import & Export Corporation ("Jilin"), Laizhou Hongda Auto Replacement Parts Co., Ltd. ("Laizhou Hongda"), Yantai Winhere Auto-Part Manufacturing Co. ("Winhere") and Yenhere Corporation ("Yenhere")). With respect to the petitioner's request that the Department conduct verification of MOFTEC and MMI, we stated in our March 29, 2000, letter to the petitioner that the Department continued to find that there was no basis on the record of these reviews for conducting such a verification. Specifically, we explained to the petitioner that absent evidence that the respondents in these reviews were under the control of the PRC government, the Department would not conduct verification at MOFTEC or MMI. Comment 3: Applying the Separate Rate Test to Laizhou Hongda The Petitioner's Argument The petitioner argues that the Department should deny a separate rate to Laizhou Hongda because it failed to provide what the petitioner termed "critical documents" to the Department at verification. (These documents are Laizhou Hongda's business license application and the certificate of approval from MOFTEC for its joint venture.) The petitioner contends that these documents, which Laizhou Hongda did not provide to the Department, may have contained evidence of de facto and de jure control of Laizhou Hongda by the PRC government. In addition, the petitioner argues that Laizhou Hondga's failure to provide these documents demonstrates a lack of cooperation by Laizhou Hongda in these reviews because Laizhou Hongda should have been able to furnish copies of these documents in preparing for verification. Therefore, the petitioner requests that the Department resort to adverse facts available by denying Laizhou Hongda a separate rate. The petitioner also argues that a section of Laizhou Hongda's joint-venture agreement (which was taken as a verification exhibit) indicates that Laizhou Hongda coordinates prices with other PRC exporters. Specifically, the petitioner states that because the Laizhou Hongda joint-venture agreement notes that Laizhou Hongda's prices "shall be in accordance with the international market conditions and other export prices set by the Chinese export companies," the Department should find that Laizhou Hongda has not satisfied the de facto absence of government control criterion and should deny it a separate rate. The Respondent's Argument Laizhou Hongda maintains that the documents in question are secondary to the business license which is more important evidence of a PRC company's right to operate, and that it has fulfilled the requirements to obtain the business license. Laizhou Hongda claims it is unreasonable to deny it a separate rate simply because it did not retain secondary documents which were part of the application process for obtaining a business license. Laizhou Hongda contends further that the business license is the most important document that an entity must possess in order to conduct business in the PRC, and that it furnished this document to the Department in its response and at verification. Laizhou Hongda states that it could not operate as a business entity in the PRC if it only had a license application or an approval certificate. Laizhou Hongda also contends that, in previous Department decisions involving separate rates, the business license has been the controlling document in those decisions and not the application documents submitted to obtain the business license. Moreover, Laizhou Hongda argues that these documents which the petitioner is emphasizing (i.e., the application form and approval certificate) are pre-license documents that have no real use after the issuance of the business license. Therefore, Laizhou Hongda maintains that the only practical reason for retaining these documents would be to show that it had completed the required application process for obtaining its business license. In response to the petitioner's claim that it coordinated its prices with other PRC exporters of the subject merchandise, Laizhou Hongda maintains that it in fact demonstrated at verification that it set its own export prices and did not coordinate its pricing with other PRC exporters or any PRC government entity. Moreover, Laizhou Hongda contends that the petitioner has cited to language from its joint-venture agreement out of context. Laizhou Hongda maintains that the cited language from its joint-venture agreement simply indicates that Laizhou Hongda must analyze the international market conditions and conduct market research on the prices of its competitors before setting its own prices. Laizhou Hongda contends that this statement in its joint-venture agreement reflects considerations which apply to all companies in the normal course of business. Therefore, Laizhou Hongda contends that the Department should find that the petitioner's claim is without merit. DOC Position: We agree with Laizhou Hongda that it is entitled to a separate rate based on an absence of de jureand de facto government control over its exporting activities, as verified by the Department, and we are satisfied with the description provided at verification of how it obtained its business license (see page six of the July 25, 2000, Laizhou Hongda verification report). The documentation and explanations Laizhou Hongda provided were sufficient for purposes of demonstrating that it is operating as an independent business. Given that the documentation and information Laizhou Hongda provided at verification demonstrating absence of de jure and de facto government control are consistent with the requirements for obtaining its business license as set forth in Article 26 of the Foreign Trade Law of the PRC, we find no legitimate basis for penalizing this company because it did not retain the application form or approval certificate which were required in order to obtain a business license as a joint venture in the PRC. Based on our examination of the business license application form examined during the verification of other PRC companies in these reviews, it is evident that the form in question is a standard one issued by the National Industrial and Commercial Administration Bureau. The form requires a company to provide basic information about the company such as its address, legal representative, ownership, nature of business and registered capital. All of the information on the business license application form is also reflected in the business license which the business licensing authority issues to the applicant. Therefore, there is no basis for denying Laizhou Hongda a separate rate simply because it did not retain the procedural form it had to complete in order to obtain its business license. In addition, the Foreign Trade Law of the PRC requires all joint-venture companies to obtain a certificate of approval from MOFTEC before receiving their business licenses from the National Industrial and Commercial Administration Bureau. As Laizhou Hongda explained at verification, the company submitted its joint-venture agreement to the MOFTEC office in Laizhou in order to receive its certificate of approval from MOFTEC in Beijing. It was then required to provide the certificate of approval and the business license application form to the business licensing authority in order to obtain a business license (see page six of the Laizhou Hongda verification report). These documents are required by the PRC business licensing authority in order to determine whether a company applying for a business license is properly registered and has the necessary registered capital to conduct the business for which it is seeking a license. We find no basis for denying Laizhou Hongda a separate rate simply because it also did not retain a copy of the MOFTEC approval certificate which it had to provide to the business licensing authority in order to obtain its business license, which we were able to examine fully at verification. With regard to the joint-venture agreement and the petitioner's claim that this document indicates that Laizhou Hongda coordinates its prices with other PRC exporters of the subject merchandise, we find that the provision stating that the company's pricing be in accordance with international market conditions and with the prices set by its competitors in the international market reflects ordinary business practice. We do not find that provision constitutes evidence that Laizhou Hongda must coordinate with other PRC exporters of the subject merchandise before establishing its prices with its U.S. customers. Moreover, the sales documentation we examined at verification supports our conclusion that Laizhou Hongda sets its own prices based on overall market conditions (see verification exhibits 11A, 12 and 13 of the Laizhou Hongda verification report). Comment 4: Use of Laizhou Hongda's U.S. Sales The Petitioner's Argument The petitioner argues that Laizhou Hongda's U.S. sales are not bona fide sales for purposes of calculating a margin because different sales documents using Laizhou Hongda and its U.S. customer's letterhead appear to be generated from the same source with the same typographical errors, thereby bringing into question the authenticity and legitimacy of these documents. Moreover, the petitioner states that it appears suspicious that the U.S. customer had knowledge of the sales terms and pricing information prior to receiving a sales agreement from Laizhou Hongda. In addition, the petitioner contends that the fact that payment to Laizhou Hongda was made prior to receipt of the goods by the U.S. customer and that the sales invoice date is only a few days before the end of the POR also raise concerns about the legitimacy of the sales. Finally, in comparing Laizhou Hongda's prices of brake rotor models sold to its U.S. customer during the POR with prices charged for the same brake rotor models to non-U.S. customers, the petitioner claims that the fact that these prices are considerably different should also call into question the legitimacy of the U.S. sales transactions. Based on these reasons, the petitioner states that the Department should not consider the sales as bona fide sales and should therefore rescind the new shipper review with respect to Laizhou Hongda. The Respondent's Argument Laizhou Hongda maintains that its reported sales are bona fide sales and that the petitioner's claim is not substantiated by any evidence on the record. Specifically, in addressing the issues related to the date of sale, Laizhou Hongda maintains that it is customary for the sale negotiations to be conducted via telephone and for the purchase order, sales confirmation and other related documents to be issued after negotiations have been concluded. Laizhou Hongda further maintains that specific sales terms are often discussed when a sale is being negotiated and that there is nothing unusual about issuing the sale confirmation on a specific date or a customer paying in advance of receiving goods. DOC Position: We agree with Laizhou Hongda. In determining whether a sale is bona fide, the Department considers whether the transaction has been so artificially structured as to be commercially unreasonable. Moreover, the Department will consider whether the shipment was made on a normal commercial basis. In the case of Laizhou Hongda, all documentation we examined at verification confirmed that Laizhou Hongda made legitimate sales transactions to the U.S. market during the POR (see pages 11 and 12 of the Laizhou Hongda verification report). Specifically, our review of the documentation showed that the U.S. customer paid Laizhou Hongda in full for the subject merchandise Laizhou Hongda sold to the U.S. customer and for the agreed upon prices and quantities. Moreover, the fact that similar typographical errors appear in documents separately generated by the two unaffiliated parties in this case is not a sufficient basis for determining that the sales reported by Laizhou Hongda are fictitious. Finally, with respect to the petitioner's claim that differences in prices to the U.S. and non-U.S. customers should call into question the legitimacy of the U.S. sales, we have no basis for concluding that the price in one market should govern the price of the same product in another market or that such information serves as a sufficient basis for suspecting circumvention of the antidumping duty order in this case. Comment 5: Allocation Methodology Used By Respondents Which Also Produce Non- Subject Merchandise The Petitioner's Argument The petitioner argues that, for respondents that also produced non-subject merchandise, the Department should reject the allocation methodology used to report per-unit material and packing labor consumption factors because it leads to distortive results. Specifically, the petitioner claims that grouping together the consumption weight of inputs used to produce both subject and non- subject merchandise and then dividing that amount by the total finished production weight of subject and non-subject merchandise yields allocation ratios which are inherently distortive, because they assume an equal distribution of all consumption inputs in relation to the weight of the final products. The petitioner further claims that this method shifts costs (i.e., consumption input amounts) to non-subject merchandise based solely on weight, does not factor in the type of product being produced (i.e., brake rotors versus pipe) and, therefore, the distribution and proportion of materials consumed for subject merchandise is inaccurate. Finally, the petitioner contends that the fact that the respondents have used this type of allocation methodology in past reviews and in the LTFV investigation is not grounds for the Department to continue to accept this methodology in these reviews. In support of its argument that the respondents have not adequately demonstrated that their allocation methodology is not distortive, the petitioner cites to Final Results of Antidumping Duty Administrative Reviews and Revocation of Orders in Part: Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden, and the United Kingdom, 65 FR 49219 (August 11, 2000) (Comment 77) (Antifriction Bearings)). The Respondents' Argument The respondents contend that the Department should continue to accept the same allocation methodology it has consistently used in prior reviews and in the LTFV investigation. The respondents argue that, in these reviews, the Department examined the respondents' allocation methodology at verification and found no discrepancies with respect to respondents' data or the method used to allocate their consumption factors over their total POR production of the subject merchandise. Since there is no evidence on the record that would warrant the Department rejecting their calculation methodology, the respondents state that the Department should continue to accept the allocation methodology they have used for these reviews. DOC Position: We agree with the respondents. We find no basis for rejecting the allocation methodologies used by the respondents in these reviews. We thoroughly examined the allocation methods utilized by the respondents we selected for verification and found no instance in which the allocation method did not provide reasonable results. Specifically, based on an examination of the respondents' production, material usage records and production facilities, we confirmed that the same material inputs were used to produce both subject and non-subject merchandise using the same production process and the methodology that the respondents used reasonably allocated each consumption amount over the net weight of the finished good (see, e.g., page 22 of the August 8, 2000, Yenhere Corporation verification report). Similarly, for packing labor, we find no basis for rejecting the respondents' methodology because the methodology reasonably allocates the time employees spend performing packing to the subject and non- subject merchandise packed. This situation is unlike the one in Antifriction Bearings, where the Department was not satisfied with the respondent's allocation methodology because the methodology did not allocate freight expenses on the basis on which those expenses were incurred and the respondent did not provide an adequate explanation for the discrepancy in allocating freight expenses on the basis of sales value rather than on the basis of weight. In these reviews, we are satisfied that the allocation methodology employed by the respondents provides non-distortive results because the method distributes the allocated input products and labor across all finished goods which are manufactured using the same inputs in comparable proportions and using the same production process. Therefore, we continue to accept the respondents' allocation methodology in these reviews. Comment 6: Considering the Use of Submitted Surrogate Values The Petitioner's Argument The petitioner argues that the Department should use the April 1998-December 1998 surrogate value data it submitted from the Indian government publication Monthly Statistics to value seven of the 13 material inputs in this case because that data is the most contemporaneous with the POR. The petitioner also objected to the Department's August 20, 2000, letter which requested that it provide updated values from Monthly Statistics for six inputs which it previously had not provided. The petitioner states that the Department should not penalize it for submitting April-December 1998 values for only seven of the 13 inputs which were available from Monthly Statistics because, among other things, it is under no obligation to submit any PAI. The Respondents' Argument The respondents argue that the Department should not use the PAI the petitioner submitted fromMonthly Statistics because the data is incomplete and because the petitioner refused to provide the Department with the complete data after the Department requested it from the petitioner in the letter dated August 20, 2000. The respondents maintain that the Department should not use the incomplete data from Monthly Statistics submitted by the petitioner because the Department has a consistent policy of avoiding selective information submitted by either party that would allow a party to influence directly the Department's calculation of normal value. DOC Position For these final results, we have used, where appropriate, the April-December 1998 data the petitioner submitted from Monthly Statistics in these final results. While the petitioner is correct that the submission of PAI is discretionary, not mandatory, the Department makes the ultimate determination of the appropriateness of the PAI submitted for purposes of margin calculations and may request additional information for completeness, if necessary, as it did in the August 20, 2000, letter. In this review, we have provided both parties with the opportunity to submit additional April-December 1998 values from Monthly Statistics, and have considered all PAI submitted in this record in a timely manner for use in these final results. As stated above, we have used the April-December 1998 Monthly Statistics data submitted by the petitioner to value certain material inputs based on the contemporaneity of the data. See surrogate value calculation memorandum for further details. Comment 7: Surrogate Value Selection for Plastic Bags The Petitioner's Argument To value plastic bags, the petitioner argues that the Department should use an import value from a basket category for plastic bags from Monthly Statistics rather than the import value from the same publication for the material from which the plastic bags are made, because it is more specific to the product used by the respondents to pack the subject merchandise. In particular, the petitioner claims that the latter value is for material in liquid or powder form and does not cover bags. The Respondents' Argument The respondents contend that the Department should continue to use the import value of the material from which the plastic bags are made rather than the basket category plastic bag import value because the information on the record does not indicate that the basket category import value for bags from Monthly Statistics better reflects the value of the plastic bags used by the respondents. DOC Position We agree with the petitioner and have used in these final results the import value for plastic bags rather than the material from which the plastic bags are made. Although the value from Monthly Statistics represents a basket category of plastic bags, it still more closely reflects the value of a plastic bag. As the petitioner correctly points out, the material value the Department used to value plastic bags in the preliminary results does not pertain to plastic bags. Comment 8: Calculation of the Surrogate Profit Ratio The Respondents' Argument The respondents contend that the Department should use the 1998 financial data of Jayaswals and the 1998-1999 financial data of Kalyani and Rico to calculate the surrogate profit ratio, SG&A, and factory overhead costs because this data covers the POR and thus is preferable to the 1996-1997 financial data the Department used in the preliminary results. In addition, the respondents contend that the use of financial data from these multiple Indian brake rotor producers of comparable merchandise is representative of the financial experience of Indian brake rotor producers during the POR. In response to the petitioner's claim that the sharp decline in Jayaswals 1998 profit was caused by its food products division and therefore cannot be relied upon for surrogate valuation purposes, the respondents maintain that Jayaswals' financial report also mentioned that the impact the food products division had on the company's overall performance was minimal. Moreover, the respondents claim that data in the report indicates that the food products division sales represented less than five percent of the company's total 1998 sales. Therefore, the respondents contend that since data in the report indicates that Jayaswals did not suffer losses on sales of food products, the Department should not disregard Jayaswals' 1998 profit ratio simply because it declined since 1996-1997. Finally, to the degree that the Department needs to confirm the "reasonableness" of the profit ratio calculated from the financial data of Kalyani, Jayaswals, and Rico, the respondents suggest that the Department compare those company's profit ratios to data for India's "Foundries and Engineering Workshop" Industry contained in theReserve Bank of India Bulletin (RBI Bulletin). The Petitioner's Argument The petitioner argues that the Department should not use the profit data from Jayaswals' 1998 financial report because that data is not representative of the behavior of Indian brake rotor producers as a whole. In particular, the petitioner contends that information in Jayaswals' 1998 report indicates that one of the divisions in the company (i.e., food products division) adversely affected the company's profitability. Therefore, the petitioner contends that, since the food products division within Jayaswals is unrelated to its brake rotors division and represents the reason why Jayaswals in 1998 realized only a minimal profit, the Department should disregard this data when calculating a surrogate profit ratio because it is not representative as a whole of the profit realized by Indian companies that primarily produce brake rotors. To illustrate its point, the petitioner compared the profit amounts realized by Jayaswals in 1996-1997 with the profit amount in 1998 and 1998-1999 motor vehicle industry information from the RBI Bulletinand concluded that, because of the precipitious drop in profit between the two years, the 1998 data is highly suspect. Based on this comparison, the petitioner claims that the reason for such a sharp decline in profit ratios between years could be due to sales made by Jayaswals outside the ordinary course of trade. For the final results, the petitioner requests that the Department continue to calculate the surrogate profit ratio by combining the 1996-1997 financial data of Jayaswals, Krishna Engineering Works (Krishna) and Nagpur Alloy Castings Ltd. (Nagpur) with the 1998-1999 financial data of Kalyani and Rico. Alternatively, the petitioner requests that the Department only use the 1998- 1999 financial data of Kalyani and Rico or the 1998-1999 data in the RBI Bulletin. DOC Position: We agree with the respondents and have used the most current financial statements of not only Jayaswals, but also Kalyani and Rico to value profit, factory overhead and SG&A expenses. Since we now have multiple financial statements on the record from Indian producers of the subject merchandise which are within the POR, it is no longer necessary to rely, as we did in the preliminary results, on the financial statements of Krishna and Nagpur, which are not within the POR. In response to the petitioner's claim that the Department should not use Jayaswals' 1998 financial data because a division within the company adversely affected the company's profitability, we have examined Jayaswals' financial report and find notes in the report which indicate that it was a combination of overall sluggishness across all divisions of the company and a recession in the steel industry in general that affected Jayaswals' sales and profitability during 1998. With regard to the automotive castings division, the report indicates that there was a slowdown in the automotive sector which adversely affected the number of orders Jayaswals received for automotive castings (i.e., brake rotors). Although the same report indicates the food products division suffered a set-back, it also indicates that the operations in that division were maintained at a bare minimum during most of 1998. Therefore, we disagree with the petitioner that the performance of the food products division adversely affected the company's profitability. Morever, we disagree with the petitioner regarding the impact the performance of this division could potentially have on the overall performance of this company. Data in Jayaswals report indicates that sales of the food products division, and in particular sales of oil, represented 10.65 and 4.8 percent of the company's total sales value in 1997 and 1998, respectively. On the other hand, sales of castings and casting-related materials made by the automotive and construction castings divisions represented 75.46 and 88.22 percent of the company's total sales value in 1997 and 1998, respectively. Therefore, we are not persuaded by the petitioner's argument that the performance of the food products division had a significant impact on the overall performance of the company. We find no basis on which to conclude that the level of profitability declined significantly between 1997 and 1998 as a result of Jayaswals' food products division. In fact, we conclude that the food product division had more of an impact on overall company performance in1997 rather than 1998, a year in which the company experienced higher profitability (seevaluation memorandum for numerical analysis). We also find no basis on which to conclude that the level of profitability declined significantly between 1997 and 1998 due to the company as a whole allegedly making sales outside the ordinary course of trade. Finally, we do not find the petitioner's use of the Indian vehicle industry data from the RBI Bulletin for making comparisons with the data in Jayaswals' financial report to be a meaningful or exact comparison since the data in the RBI Bulletin is not specific to the brake rotors industry. Comment 9: Surrogate Value Selection for Firewood The Petitioner's Argument The petitioner contends that the 1991 firewood value from a 1996 FAO publication (which it provided in its March 10, 2000, submission) is more accurate than the 1990 firewood value from a report published by the U.S. Agency for International Development (USAID) the Department used in the preliminary results because the 1991 value more accurately reflects the effects of a worldwide increase in firewood prices during the last decade. In addition, the petitioner contends that the 1991 firewood value is more contemporaneous to the POR than the 1990 value. The Respondents' Argument The respondents contend that the FAO firewood value submitted by the petitioner is not an Indian value, but rather a composite average firewood value for multiple Asian countries. In response to the petitioner's claim that the FAO firewood value is more contemporaneous to the POR than the USAID firewood value, the respondents state that in inflating the USAID firewood value to the POR using wholesale price indices, the Department is accounting for the increase in Indian firewood prices during the last decade. DOC Position We agree with the petitioner and have used data from the FAO to value firewood. We examined the FAO document and it is clear that the document contains an Indian-specific firewood value which also happens to be the average price based on prices taken from 15 Asian countries. Combined with the fact that the FAO value is also more contemporaneous to the POR than the USAID value, we have used the FAO data to value firewood in these final results and have inflated the value to the POR using Indian wholesale price indices. Comment 10: Surrogate Value Selection for Labor The Petitioner's Argument The petitioner argues that the Department should use current figures for the PRC's per-capita gross national and domestic product published by the World Bank and the U.S. State Department to calculate the labor rates because this data is more contemporaneous with the POR. The respondent did not comment on this issue. DOC Position Since the preliminary results, the Department has updated the labor wage rate on the International Trade Administration's ("ITA's") web site. We have used the updated labor wage rate from the web site to value labor in these reviews. See ITA's website at http://ia.ita.doc.gov for current PRC labor rate calculation. Comment 11: Surrogate Value Selection for Foreign Inland Freight The Petitioner's Argument The petitioner argues that the Department should use a February 2000 truck freight rate from the Indian periodical The Times of India to value foreign inland freight and material supplier distances because that value is more contemporaneous with the POR than the April 1994 truck freight rate from the same publication which the Department used in the preliminary results. Alternatively, the petitioner argues that the Department should use the November 1999 average truck freight value used in the LTFV investigation of bulk aspirin from the PRC, which is an average of 17 price quotes from six different Indian trucking companies. The Respondents' Argument The respondents argue that the Department should not use the February 2000 truck freight value from The Times of India because there is no indication that the value is based on both a specific weight and distance. Moreover, the respondents contend that the rate appears to be unrepresentative of all rates in India, because it pertains only to a specific region in India. DOC Position We agree in part with the petitioner and have used the November 1999 average truck freight value because it is representative of freight rates in India and because it is more contemporaneous to the POR than the April 1994 truck freight rate we used in the preliminary results. In addition, the November 1999 freight value is based on both weight and distance and incorporates the factor amounts and supplier distances the respondents reported in their responses. We have not used the February 2000 rate also suggested by the petitioner because it is based solely on weight. 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 results of reviews and the final weighted-average dumping margins for the reviewed firms in the Federal Register. Agree____ Disagree____ /s/ _____________________ Troy H. Cribb Acting Assistant Secretary for Import Administration _____________________ (Date) 1. The exhibits were entitled: Priorities of External Cooperation for Automotive Industry During the Ninth Five-Year Plan Period, Priorities of External Cooperation For Electrical Equipment Industry During the Ninth Five- Year Plan Period, Priorities of External Cooperation for Machine Tool and Tool Industry During the Ninth Five-Year Plan Period, Priorities of External Cooperation for Construction Machinery Industry During the Ninth Five-Year Plan Period, and Priorities of External Cooperation for Basic Machinery Parts Industry During the Ninth Five-Year Plan Period (hereinafter "the Five Year Plan"). The names of these exhibits were not confidential and were in the public verification report.