66 FR 49345, September 27, 2001 A-570-864 Investigation POI: 4/1/00 - 9/30/00 Public Document IA I/2: DM MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group I Office of AD/CVD Enforcement DATE: September 14, 2001 SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Investigation of Pure Magnesium in Granular Form from the People's Republic of China Summary We have analyzed the case and rebuttal briefs of interested parties in the investigation of sales at less than fair value of pure magnesium in granular form from the People's Republic of China. As a result of our analysis, we have made changes in the margin calculations for the final determination. 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 investigation for which we received comments from interested parties: Comment 1: Separate Rate for Minmetals Comment 2: The Use of a Combination Rate Comment 3: The Proper Surrogates for Overhead, SG&A and Profit Ratios Comment 4: Calculation of Overhead and SG&A Ratios Applied to HEBI Comment 5: Valuation of Steam Coal Comment 6: Valuation of Ferrosilicon and Dolomite Comment 7: Marine Insurance Adjustment for Inflation Comment 8: Ocean Freight Comment 9: Treatment of Fluorite Powder as Overhead Expense vs. Direct Material Input Comment 10: Valuation of Taiyuan's July 2000 Electricity Consumption Factor Comment 11: Correction of Taiyuan's Direct Labor Hours Comment 12: Correction of HEBI's Packing Material Weights Comment 13: Treatment of Magnesium Shreds Comment 14: Revision to the Scope of the Investigation Comment 15: Reconsideration of Industry Standing Background On April 30, 2001, the Department of Commerce (the Department) published the Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Pure Magnesium in Granular Form from the People's Republic of China, 66 FR 21314 (Preliminary Determination). We invited parties to comment on our preliminary determination. The petitioners and a domestic interested party, Rossborough Manufacturing Co. LP. (Rossborough), each requested a public hearing, which was held at the Department on August 2, 2001. The period of investigation (POI) is April 1, 2000 through September 30, 2000. Margin Calculations We calculated export price and normal value using the same methodology stated in the preliminary determination, except as follows: 1. We revised our margin calculations for the sole respondent, Minmetals Precious & Rare Minerals Import and Export/China National Nonferrous Metals Industry Trading Group Corp (Minmetals), to take into account our findings at verification. For further discussion, see the September 14, 2001, memorandum from Dinah McDougall to the file entitled "U.S. Price and Factors of Production Adjustments for the Final Determination." 2. For the magnesium producers Taiyuan Shi Geng Yang Enterprise Company, Ltd. (Taiyuan) and Wealth (HEBI) Co., Ltd. (HEBI) we changed the surrogate financial ratios for factory overhead, selling, general and administrative (SG&A) expense, and profit. See Comment 3 and Comment 4. 3. For marine insurance, we have not adjusted the rate for inflation. See Comment 7. 4. We used facts available to value the July 2000 electricity consumption rate of Minmetals' supplier Taiyuan. See Comment 10. Discussion of the Issues Comment 1: Separate Rate for Minmetals In the preliminary determination, the Department assigned Minmetals a separate rate, based on the conclusion that the company sufficiently demonstrated the absence of both de jure and de facto control by the People's Republic of China (PRC) government over its export activities. The petitioners argue that the Department should reverse this decision for the final determination because the PRC government does, in fact, exercise control over Minmetals. The petitioners base their argument primarily on statements made by an official of the Chinese Magnesium Association (CMA) which were published in Platts Metal Week. According to the petitioners, this official indicated that the CMA would coordinate with other PRC exporters and producers to export subject merchandise through Minmetals. Specifically, the petitioners note that this official made the following two statements: 1) PRC magnesium companies might export through Minmetals this year to avoid the high antidumping duties imposed on them; and 2) the United States would remain the PRC's key magnesium market if Minmetals manages to export there this year. The petitioners contend that both of these statements lead to the conclusion that the PRC government, through the CMA, exercises de facto control over Minmetals' export activities, because they contradict Minmetals' assertion that it does not coordinate with other exporters in setting prices or in determining which companies will sell to which markets. The petitioners contend that the Department has previously determined that one company's participation in the setting or negotiation of prices charged by another company demonstrates that the company is legally or operationally in a position to exercise restraint or direction over the other company. See Certain Welded Stainless Steel Pipe From Taiwan; Final Results of Administrative Review, 62 FR 37543, 37549 (July 14, 1997) (WSSP from Taiwan). (1) The petitioners maintain that the Court of International Trade affirmed the Department's finding in WSSP from Taiwan, stating that the ability to set the prices charged by another company is a "strong indicator" of one person's ability to control the other. See Ta Chen Stainless Steel Pipe Co. v. United States, No 97-08-01344, Slip Op. 99-117 at 27, 28 (CIT Oct. 28, 1999). Thus, the petitioners argue that the Department cannot ignore the publicly available, record evidence demonstrating the degree of PRC governmental de facto control over Minmetals. Minmetals contends that the Department was correct in assigning it a separate rate for the preliminary results. According to Minmetals, the facts on the record clearly demonstrate that Minmetals has complete control over its business activities, including establishing its own export prices, negotiating contracts without governmental guidance; making its own personnel decisions; and retaining the proceeds of its sales. Minmetals maintains that the Department confirmed each of these facts at verification, and the petitioners have not presented any credible evidence to the contrary. Minmetals disagrees with the petitioners' assertion that the CMA, and by extension the PRC government, exercises control over the company's export activities. Minmetals notes that the CMA is merely a trade association which performs the functions normally performed by any trade association. Minmetals contends that the CMA is not related to any governmental entities, nor does it have the authority to direct any exports through Minmetals. According to Minmetals, even assuming, arguendo, that other companies will be exporting through Minmetals, the Department's anticircumvention mechanisms and administrative proceedings are well- equipped to address fraud and dumping. Therefore, Minmetals contends that the Department should continue to grant it a separate rate for the final determination. Department's Position: At verification, we reviewed Minmetals' claim for a separate rate with company officials. In addition, we extensively reviewed the company's sales documents, and we examined the company's internal sales target plan for 2001, which indicates the projected sales target on a product-specific basis for each quarter. We found no evidence to contradict Minmetals' contentions that it is solely responsible for setting its export prices and that it does not coordinate with other producers or exporters regarding sales of subject merchandise. Contrary to the petitioners' assertions, we find that statements made by the CMA do not in any way contradict our findings at verification. Rather, these statements merely appear to be speculation on the part of a CMA official about what "might" happen in the future. In Asociacion Colombiana Exportadores de Flores v. United States, 40 F. Supp. 2d 466, 472 (CIT 1999), the Court of International Trade held that speculation cannot constitute substantial evidence. (2) Moreover, while these statements may suggest how producers and exporters might act in the future, they do not support the contention that Minmetals' export activities are controlled by the central government. We further note that the article in question did not provide any link between the CMA and the government, nor any link between Minmetals and either the CMA or the government. As such, we find that statements by an employee of the CMA do not provide compelling evidence which would lead us to reverse our separate rates decision for Minmetals. Therefore, absent clear evidence that the government of the PRC is involved in the controlling of Minmetals' export activities, we determine that Minmetals continues to be entitled to a separate rate in this case. We find that the petitioners' reliance on WSSP from Taiwan is similarly misplaced. In that case, the Department found that the respondent was affiliated with one of its customers, based in part on a finding that the respondent was able to set the prices for resales by one of its U.S. distributors. In contrast, we find no evidence here that the PRC government is setting prices or controlling price negotiations for Minmetals. Comment 2: The Use of a Combination Rate The petitioners contend that, if the Department continues to grant Minmetals a separate rate, it should, at a minimum assign a combination rate to Minmetals and its one known supplier, Taiyuan. According to the petitioners, the Department's duty in administering the antidumping law is to prevent producers receiving high rates from evading the effect of an order by exporting merchandise through non-producing trading companies with lower dumping margins. In support of this assertion, the petitioners cite Jia Farn Mfg. Co. v. United States, 817 F. Supp 969, 975 (CIT 1993). The petitioners acknowledge that the Department's normal practice in non- market economy (NME) cases is to examine and assign margins to exporters located in the NME, rather than NME producers. On the one hand, the petitioners maintain that this policy is reasonable because it is the exporter who actually determines the price at which the subject merchandise is sold to the United States. Nonetheless, they contend that the policy is also unreasonable because it is not consistent with the Department's policy regarding trading companies in market economy cases. Specifically, the petitioners maintain that, in market economy cases involving trading companies which export to the United States without their suppliers' knowledge, the Department's practice has been to assign the exporters rates in combination with the suppliers in question. According to the petitioners, should the exporter later make sales of merchandise produced by a different supplier, those exports will receive the supplier's rate, or, if the supplier has no rate, the "all others" rate. The petitioners assert that the Department only deviates from this policy in instances where the potential for circumvention has been high, and then only to eliminate the incentive to circumvent antidumping duties. See Final Determination of Sales at Less Than Fair Value: Stainless Steel Sheet and Strip in Coils From Taiwan, 64 FR 30592, 30605 (June 30, 1999) (Sheet and Strip from Taiwan). According to the petitioners, the Department's approach in NME cases should not be any different. The petitioners concede that the Department's regulations allow it to assign combination rates in NME cases only in limited circumstances (i.e., involving exclusions from an antidumping order). See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27295, 27303 (Preamble). Nonetheless, the petitioners contend that this policy is contrary to the reality of NME proceedings and the requirements of the law. According to the petitioners, the Department has never offered any coherent explanation for distinguishing between NME and market economy cases in this respect. However, they state that administrative inconvenience is not a reasonable distinction because it is possible to devise a test to identify exporters for whom combination rates are most appropriate. Although the petitioners decline to suggest any criteria for such a test, they maintain that Minmetals and its supplier would qualify under any conceivable standard. Similarly, they contend that the basis for normal value (i.e., factors of production or home market price) is not a legitimate distinction because the Department only compares U.S. prices produced by a particular company to either the factors of production of the same supplier (in an NME case) or the home market prices of the same supplier (for a market economy case). The petitioners assert that the conduct of future administrative reviews by the Department does not provide an effective remedy to the problem of producers selling through exporters with a low cash deposit rate, because the first administrative review is not concluded until at least two years after the final determination in an investigation. The petitioners contend that, during this time, other producers can ship through the exporter to the United States using the lowest rate possible. According to the petitioners, it is not appropriate for the domestic industry to bear the burden of assessing whether an exporter has become a conduit for new producers. Finally, the petitioners contend that the situation in this investigation is unique because there is evidence on the record that Minmetals intends to circumvent the order. (3) See the petitioners' argument in Comment 1, above. The petitioners contend that the problem is further heightened in this case because the difference between Minmetals' rate and the PRC-wide rate is considerably greater than the difference between respondents' rates and PRC-wide rates in previous NME investigations. According to the petitioners, if Minmetals does not intend to act as a conduit for exports for other PRC companies, the assignment of a combination rate would not harm Minmetals in any way. Thus, the petitioners argue that the Department should "act forcefully within the bounds of the statute" to preclude circumvention of antidumping duties, just as it does in every similar market economy case, and assign a combination rate to Minmetals and Taiyuan. According to Minmetals, a combination rate is applicable only if the Department calculates a zero or de minimis margin for a particular exporter, in accordance with 19 CFR 351.107(b). Minmetals contends that the Department's combination rate policy in market economy cases is not applicable to NME cases, because the same factual circumstances do not exist in the two types of proceedings. Specifically, Minmetals notes that the Department applies a knowledge test in market economy cases, whereby the Department considers a U.S. sale to have been made by the first company in the sales process (usually the producer) who has knowledge that the shipment is destined for the United States. Minmetals maintains that the Department assigns combination rates to non-producing exporters in market economies solely to prevent the circumvention of an order by producers to whom the Department has assigned a high dumping margin (i.e., to prevent these producers from shipping through trading companies assigned lower rates). Minmetals asserts that NME cases are different, however, because producers not acting as exporters cannot receive their own dumping rates. Therefore, Minmetals concludes that knowledge of destination plays no role in NME cases, and thus no fraud can be perpetuated by NME producers - obviating the need to apply a combination rate. Minmetals disagrees with the petitioners that the facts in this case are analogous to those in Sheet and Strip from Taiwan. According to Minmetals, in Sheet and Strip from Taiwan, the Department had on the record actual evidence of middleman dumping and had initiated a separate middleman dumping investigation. However, Minmetals contends that no such evidence of circumvention exists here. Minmetals also disagrees that the administrative review process does not provide an effective remedy to the petitioners' concerns regarding circumvention. Minmetals notes that all of its future U.S. exports will remain subject this process, which can be legally triggered by the petitioners. According to Minmetals, should the Department find that the company is dumping after the completion of this review, the Department will assess additional duties and require it to pay higher cash deposit rates for future entries. Thus, Minmetals asserts that, absent any tangible evidence of circumvention on the record, it would be improper and premature for the Department to subject it to a combination rate. Finally, Minmetals contends that assigning it a combination rate would harm the company's business, because this would effectively exclude any exports to the United States purchased from other suppliers. According to Minmetals, under U.S. antidumping law, a company is permitted to select a different supplier for its merchandise as long as it does so while complying with the antidumping order. Minmetals asserts that it is entitled to a single dumping rate because it makes its own pricing decisions, regardless of the identity of its supplier. Minmetals further contends that, if it selects a different supplier, it must adjust its prices accordingly in order to avoid being assessed additional duties. Thus, Minmetals contends that it would be unreasonable to limit its choice of suppliers by subjecting it to a combination rate for purposes of the final determination. Department's Position: The Department's policy regarding the assignment of combination rates in NME cases is set forth in the preamble to the Department's current regulations. Specifically, the preamble states the following: if sales to the United States are made through an NME trading company, we assign a noncombination rate to the trading company regardless of whether the NME producer supplying the trading company has knowledge of the destination of the merchandise. One exception to this NME practice occurs where we find no dumping and exclude an exporter from an AD order. Where exclusions are involved, we publish a combination rate to address the same concerns described above regarding redirection of exports through an excluded trading company. Nothing in § 351.107(b)(1) is intended to change our policy for assigning rates in NME proceedings. See Preamble, 62 FR at 27303. We find that this policy continues to be appropriate in this case. As we indicated in our response to Comment 1, we find that statements made by the CMA merely constitute speculation on the part of a CMA official about what "might" happen in the future. However, as noted above, speculation cannot constitute substantial evidence and we have not treated it as such here. Thus, contrary to the petitioners' characterization of this situation as "unique," we do not find that the circumstances in this case are distinguishable from those in other proceedings in which the Department has considered, and rejected, the assignment of combination rates to NME exporters which have not been excluded from a potential antidumping order. We also disagree with the petitioners that the administrative review process is not the appropriate forum for determining whether Minmetals has changed its pricing practices. As we stated in Final Determination of Sales at Less Than Fair Value: Disposable Pocket Lighters from the People's Republic of China, 60 FR 22359, 22364 (May 5, 1995): Where a producer/exporter combination is found not to be dumping, it is appropriate to publish a rate that applies to that producer/ exporter combination because they are excluded from the order and, therefore, future administrative reviews. However, all other exporters remain subject to the order and administrative reviews. Hence, contrary to petitioner's assertion, those exporters have no incentive to export the output of producers that might yield a high FMV unless they adjust their U.S. prices accordingly. If they fail to do so, an administrative review would result in an assessment of additional duties, with interest, and a higher cash deposit rate for future entries. Thus, because Minmetals will be liable for any increase in its rate of dumping, we find that it is unlikely that it will allow PRC suppliers to use it as a "conduit" for their exports without also controlling the U.S. price of those shipments. Indeed, we found at verification that Minmetals currently has complete control over the prices at which it sells to the United States, and we have no reason to believe that this fact will change at any point in the future. (4) Finally, we disagree with the petitioners' contention that the Department's combination rates policies in NME and market economy cases are inconsistent. Although we may use combination rates in market-economy cases, we usually do not. Further, we note that, unlike in market- economy proceedings, the Department generally does not apply a "knowledge test" in NME cases, but rather assigns separate rates only to entities that export to the United States. (5) That is, in NME cases we only examine sales by exporters and assign rates to those exporters. We do not determine rates for their suppliers. In contrast, in market-economy proceedings, the knowledge test determines whether the supplier or the exporter is the appropriate respondent, which is significant because the respondent is the entity which is the potential price discriminator in any given case. Therefore, in accordance with our NME policy, we have not assigned a combination rate to Minmetals for purposes of the final determination. Comment 3: The Proper Surrogates for Overhead, SG&A and Profit Ratios In the preliminary determination, the Department derived the surrogate ratios for factory overhead and SG&A expense from the financial statements of an Indian producer of pure magnesium, Southern Magnesium and Chemicals Ltd. (Southern Magnesium). However, since Southern Magnesium's financial data showed a loss for that year, the Department based the surrogate profit ratio on a different set of financial data. For the profit ratio, the Department used the 1998-1999 financial aggregates and ratios data for the general category of "other nonferrous metals" producers in India, published by the Centre for Monitoring Indian Economy (CMIE). Minmetals maintains that in selecting the appropriate surrogate values, the Department's practice is to disregard surrogate values that are aberrational or deemed to be outside the ordinary course of business, as discussed in the Preamble (see 62 FR at 27366) and Freshwater Crawfish Tail Meat from the People's Republic of China; Final Results of New Shipper Review, 64 FR 27961 (May 24, 1999). The respondent argues that close examination of Southern Magnesium's 1998-1999 annual report reveals that the company did not operate according to its normal course of business, because the company suffered a major disruption in the sourcing of a critical material resulting in substantially decreased production for the year. Therefore, since the company's production for the 1998-1999 fiscal year was aberrational, the respondent contends that it is inappropriate for the Department to use Southern Magnesium's financial statement as a basis for the surrogate ratios for overhead and SG&A. Minmetals also asserts that the Department should not value the profit ratio from a source which is separate from that used to value the overhead and SG&A ratios. Minmetals contends that, since profit is calculated based on the revenue and expenses of the same company, the same set of financial data should be used to link all three ratios. Consequently, Minmetals proposes that the Department base all surrogate ratios on the CMIE data, which has been used as a reliable source in other cases, such as Manganese Metal from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 66 FR 15076 (Mar. 15, 2001) (Manganese Metal). Finally, Minmetals notes that the petitioners have requested the Department to base profit on the financial statements of various aluminum producers in India (see below). According to Minmetals, however, these financial statements do not provide a proper basis for surrogate data because the dominating presence of a government-owned and controlled aluminum company suggests that the entire aluminum industry in India is subject to market distortions. (6) Moreover, Minmetals counters the petitioners' argument to use the financial data of four copper and zinc producers to value profit by pointing out that there is no evidence to suggest that these companies, hand-picked by the petitioners, more closely represent the experience of magnesium producers than the industry- aggregate data reported by the CMIE. Accordingly, the respondent argues that all alternative surrogate choices suggested by the petitioners are unreliable and, therefore, Minmetals urges the Department to base all surrogate ratios on the CMIE data. The petitioners agree with the Department's use of Southern Magnesium's financial data for the surrogate ratios for overhead and SG&A. The petitioners argue that since Southern Magnesium produces identical merchandise, the use of this data is reasonable and consistent with the Department's practice of using data from producers of identical or comparable merchandise, as discussed in Glycine from the People's Republic of China; Final Results of New Shipper Administrative Review, 66 FR 8383 (Jan. 31, 2001) and accompanying decision memorandum at Comment 1 (Glycine from the PRC), and Notice of Final Determination of Sales at Less Than Fair Value; Polyvinyl Alcohol from the People's Republic of China, 61 FR 14057, 14061 (Mar. 29, 1996) (PVA from the PRC). On the other hand, the petitioners contend that the CMIE data is not an appropriate choice, since it does not incorporate any financial data from producers of identical or comparable merchandise, and the "Other Nonferrous Metals" category consists of unspecified producers of zinc, lead and copper. Moreover, the petitioners claim that Minmetals has failed to provide any evidence that the decline in Southern Magnesium's production has resulted in a distortion of the per-unit costs. Indeed, the petitioners note that a comparison of Southern Magnesium's 1998-1999 financial data to the previous year's data reveals that the increase in the per-unit cost between the two years not only is insignificant but it is also less than the inflation factor indicated by the World Price Index for India during this time. Therefore, the petitioners contend that the Department should reject Minmetals' claim that the 1998-1999 financial data are aberrational. The petitioners also argue that the Department is not required to value financial ratios using surrogate data from a single source. According to the petitioners, there have been instances when the benefit of comparing data of an industry most comparable to the subject merchandise has outweighed the Department's preference to value all of the financial ratios from a single source, such as in Tapered Roller Bearings and Parts Thereof, Finished or Unfinished, From Romania; Final Results of Antidumping Duty Administrative Review, 62 FR 37194 (July 11, 1997) and Notice of Final Determination of Sales at Less Than Fair Value: Beryllium Metal and High Beryllium Alloys from the Republic of Kazakstan, 62 FR 2648 (Jan. 17, 1997). As a surrogate for the profit ratio, the petitioners suggest that the data from the aluminum industry is appropriate, because aluminum is a comparable product to magnesium and the data is contemporaneous with the POI. The petitioners refute Minmetals' claim of market distortion, stating that even if Minmetals had identified which aluminum producer is government-owned, it would be simple for the Department to exclude this company's data from the average. The CMIE cannot be so easily adjusted, according to the petitioners, because the Department cannot infer from the CMIE data that no government-owned entities have been included. In the event that the Department finds that non-ferrous metals are more comparable to magnesium than aluminum, the petitioners suggest that using the financial statements of certain non-ferrous metals producers to derive a surrogate value for profit would be more reliable than using the all- inclusive CMIE data. In support of this argument, the petitioners cite to Pure Magnesium from the People's Republic of China: Final Results of Antidumping Duty New Shipper Administrative Review, 63 FR 3085, 3088 (Jan. 21, 1998) (Pure Magnesium), and Notice of Final Determination of Sales at Less Than Fair Value: Creatine Monohydrate from the People's Republic of China, 64 FR 71104, 71108 (Dec. 20, 1999) (Creatine) and accompanying decision memorandum at Comment 1, in which the Department has previously indicated that it prefers to use company-specific data or more narrowly defined industry averages over averages based on a broad-range of similar industries. Moreover, the petitioners suggest that the relatively low profit ratio provided by the CMIE data indicates that the aggregate data includes information from companies which have experienced negative profitability For these reasons, the petitioners maintain that the use of several financial statements of the same types of producers contained in the CMIE data would be more reliable than the CMIE average itself, since they are more contemporaneous to the POI, are not government-owned entities, and all have experienced a positive profit rate. Department's Position: Section 351.408(c)(4) of the Department's regulations directs the Department to value overhead, general expenses, and profit using non- proprietary information gathered from producers of identical or comparable merchandise in the surrogate country. In this proceeding, we have the following Indian industry experience on the record: a. the 1998-1999 annual report of a producer of pure magnesium, which shows a negative profit figure (Southern Magnesium); b. 1998-1999 data contained in the June 2000 report of Industry Financial Aggregates and Ratios data for non-ferrous metals producers (copper, lead and zinc), which includes positive ratios for overhead, SG&A and profit (CMIE); c. the 1999-2000 profit figures from certain Indian aluminum producers derived from financial data posted on an online source; (7) and d. the 1999-2000 financial statements of four Indian producers of copper and zinc. We agree with Minmetals that Southern Magnesium's 1999 fiscal year (FY) data was aberrational. Significantly, the Directors Report at page 3 of Southern Magnesium's 1999 financial statements indicates that the company experienced a production volume that was substantially lower than normal, which resulted in an "inadequate contribution towards fixed expenses..." This statement was borne out by the fact that, as a percentage of materials, labor and energy, the company's 1999 overhead rate increased by over 30 percent from the previous year." (8) Because we have concluded that the 1999 data was not representative of Southern Magnesium's normal production experience, we considered the factory overhead and SG&A on the company's 1998 data, which is also included in its 1998-1999 financial report. Under our current NME practice, the Department has a preference for selecting producers of identical merchandise as the source for surrogate data, provided that the surrogate data is not distorted or otherwise unreliable. See, e.g., Persulfates from the People's Republic of China: Final Results of Antidumping Administrative Review, 66 FR 42628 (Aug. 14, 2001) and accompanying decision memorandum at Comment 5 (Persulfates). Of the choices available in this case, only Southern Magnesium produces identical merchandise and, moreover, the vast majority of its business is the production of magnesium. Although the 1998 financial data is not the most contemporaneous data available, it differs from the 1999 data by only one year and is consistent with previous years' experience. As a consequence, we find that Southern Magnesium's 1997-1998 data constitutes the best source of surrogate information in this case, and we have continued to use it as a basis for valuing factory overhead and SG&A for purposes of the final determination. We note that the Department's preference is to value factory overhead, SG&A, and profit using a single source where possible. However, we recognize that, in cases where the preferred financial statements do not reflect a profit for a given period, we may use an alternative source for profit in accordance with our practice. See Silicomanganese from Brazil, Final Results of Antidumping Administrative Review, 62 FR 37877-37878 (July 15, 1997); Notice of Final Determination of Sales at Less Than Fair Value: Steel Concrete Reinforcing Bars from the People's Republic of China, 66 FR 33522 (June 22, 2001) and accompanying decision memorandum at Comment 8; and Persulfates at Comment 5. In this case, because Southern Magnesium's 1998 financial statements reflect a loss for the year, we have looked to an alternative source for profit. Of the three remaining choices for valuing profit, our preference is to base our selection on the comparability of the merchandise, rather than the number of producers included in the surrogate data source. See Creatine, 64 FR at 71108 ("[W]e prefer producer- or industry-specific data for overhead, SG&A and profit."). Because we seek information that pertains as narrowly as possible to the subject merchandise, the Department, in most cases, has used the producer-specific data since the industry-specific data available to the Department tends to be broader in terms of merchandise included. (9) In this case, we find that the product which is most comparable to magnesium is aluminum. See Pure Magnesium, 63 FR at 3087. We have available FY 2000 data from four Indian producers, whose business is predominantly or exclusively the production of aluminum, to value profit for purposes of the final determination. (10) This information has the additional advantage of being the most contemporaneous data on the record of this proceeding. Therefore, we have relied on the profit information from these four financial statements. Regarding Minmetals' argument that the dominating presence of the Indian government in the aluminum industry renders its data unusable, we find that Minmetals has provided no evidence of market distortion in this case. Thus, we find that this argument does not provide an adequate basis to rejecting the financial data from the four aluminum producers in question. Comment 4: Calculation of Overhead and SG&A Ratios Applied to HEBI During the POI, Minmetal's supplier, Taiyuan, produced magnesium ingots. Taiyuan used HEBI to grind its ingots into the subject merchandise and packing it into bags. In the preliminary determination, the Department calculated surrogate overhead and SG&A ratios for HEBI based on the financial statement of Southern Magnesium. Minmetals contends that these ratios were incorrectly calculated, because the basis of the numerator used in each calculation was inconsistent with that of the denominator. As a result, the respondent asserts that the Department's calculations grossly inflated the surrogate overhead and SG&A ratios for HEBI. Minmetals explains that, as a grinding subcontractor, HEBI only incurs energy and labor costs. The respondent argues that dividing Southern Magnesium's total overhead costs solely by its energy costs overstated the resulting overhead ratio of 70.21 percent because Southern Magnesium's overhead consists of expenses that are unrelated to energy costs, such as indirect materials, stores and spares, and the depreciation of unrelated fixed assets. Similarly, Minmetals argues that the SG&A ratio of 63.41 percent is inflated because the use of Southern Magnesium's total SG&A in the numerator unfairly includes types of selling and administrative expenses that a simple grinding operation would never incur. Minmetals acknowledges that it would be difficult to segregate only energy-related overhead and SG&A expenses from the surrogate financial data on the record. Consequently, Minmetal's proposes that the Department apply to HEBI the same overhead and SG&A ratios as those used for Taiyuan. Minmetals maintains that this practice would be consistent with the Department's valuation of subcontractor costs in Manganese Metal, as discussed in the Factors Memorandum of that case at Attachment 12. The petitioners agree with the Department's calculation methodology, arguing that it is consistent with both the Department's practice in NME cases and the facts of this case. Citing to 19 CFR 351.408(c)(4), the petitioners claim that the Department appropriately based the amounts for overhead and SG&A on the financial data from a producer of identical or comparable merchandise. Moreover, the petitioners claim that the Department's calculation of these ratios as a percentage of non-labor direct costs is consistent with the Department's practice, as set forth in Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the People's Republic of China; Final Results of 1996-1997 Antidumping Duty Administrative Review and New Shipper Review and Determination Not To Revoke Order in Part, 63 FR 63842, 63849 (Nov. 17, 1998). The petitioners contend that Minmetals' argument that the amount for HEBI's total overhead and SG&A should only reflect those costs related to energy consumption is without merit because, as Minmetals has acknowledged, the record does not contain sufficient information to determine what portion of Southern Magnesium's costs are related to energy. The petitioners argue that it would be inappropriate for the Department to arbitrarily attempt to subdivide Southern Magnesium's total overhead and SG&A expenses into elements related to energy or other cost elements. With regard to Minmetals' suggestion that the Department apply to HEBI the same overhead and SG&A expenses that were used for Taiyuan, the petitioners allege that the proposal is an attempt to significantly understate those expenses that are applicable to HEBI. The petitioners explain that because the ratios calculated for Taiyuan divide the expenses incurred by Southern Magnesium by the sum of energy and material costs (which HEBI does not incur), the application of the Taiyuan ratios to the non-labor costs incurred by HEBI would result in a mismatch between the basis for the ratio and the value to which it is being applied. Instead, the petitioners assert that the denominator used in calculating the ratios should contain the cost elements reflected in the value to which the ratio will be applied. Finally, the petitioners argue that the Department's margin calculation program used in the preliminary determination correctly identifies the non- labor direct expenses incurred by HEBI, and that there is complete consistency between the basis used to derive the ratio and the value against which the ratio is applied. For the final determination, the petitioners urge the Department to reject Minmetals' argument and apply the same calculations as were used in the preliminary determination. Department's Position: Upon further consideration, the Department agrees with the respondent that the surrogate overhead and SG&A expense ratios for HEBI calculated in the preliminary determination are overstated. However, in calculating overhead and SG&A, it is the Department's practice to accept data from the surrogate producer's financial statements in toto, rather than performing a line-by-line analysis of the types of expenses included in each category. For further discussion, see Notice of Final Determination of Sales at Not Less Than Fair Value: Pure Magnesium from the Russian Federation, and accompanying decision memorandum at Comment 2, issued on September 14, 2001, and published concurrently with this notice. Therefore, even assuming that Southern Magnesium's financial statements contained sufficient detail to allow us to exclude certain costs, we would not do so in this case in accordance with our practice. Nonetheless, we also agree that it is not appropriate to derive the overhead and SG&A ratios for HEBI using denominators containing only energy costs. We believe that overhead and SG&A are not a function of energy costs alone. Consequently, we have, as in other NME cases, expressed those ratios as a percentage of materials and electricity costs. Accordingly, we have applied the same surrogate overhead and SG&A ratios based on the financial statements of Southern Magnesium to both HEBI and Taiyuan for the final determination. Comment 5: Valuation of Steam Coal In the preliminary determination, we based the valuation of coal on Indian import prices for the year 1998-1999, as reported in Monthly Statistics of the Foreign Trade of India (March 1999), which we adjusted for inflation. These prices were also used in the most recently completed antidumping duty administrative review of Persulfates. See Persulfates from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, 66 FR 18439, 18442 (Apr. 9, 2001), unchanged in the final results. Minmetals argues that the Department should value steam coal using a price quote submitted in its February 13, 2001, submission on surrogate values, because the price quote: (1) is more contemporaneous to the POI than the Indian import statistics; (2) is more product-specific than the categorized information reported in the Indian import statistics; and (3) is more accurate because it will obviate the need to adjust for inflation. The petitioners agree with the Department's use of Indian import statistics to value steam coal. According to the petitioners, the Department's practice is to base surrogate values for direct material inputs on broad-based market averages rather than single price quotes where possible, as discussed in the preamble to the antidumping duty regulations. See Preamble, 63 FR at 27366. To support this assertion, the petitioners cite Manganese Metal at Comment 9; Notice of Final Results and Partial Recission of Antidumping Duty Administrative Reviews: Heavy Forged Hand Tools from the People's Republic of China, 65 FR 43290 (July 13, 2000) (Hand Tools) and accompanying decision memorandum at Comment 6; and Creatine at Comment 1. The petitioners contend that the publicly-available Indian import statistics are representative of a broad range of non-export based values, and therefore, any short-term price distortions resulting from the use of a single price quotation would be eliminated. Department's Position: As discussed in the preamble to our regulations, the Department generally prefers to use a range of prices for the input being valued, rather than a single price quote. (See the Preamble, 63 FR at 27366.) Specifically, the preamble states the following: "when compared to a publicly available price that reflects numerous transactions between many buyers and sellers, a single input price reported by a surrogate producer may be less representative of the cost of that input in the surrogate country." In this case, the Indian import statistics include data based on one full year of imports of steam coal from two market-economy countries. Thus, we find that an average based on a broad range of prices, rather than one price quote from a single point in time, provides a more representative surrogate value, despite the fact that the price quote is more contemporaneous. We disagree with Minmetals that the price quote is more product-specific than the import statistics used in the preliminary determination. Specifically, we note that the statistics contain a sub-category of coal data labeled "steam coal." Accordingly, we have continued to value steam coal using the relevant data from the Indian import statistics for purposes of the final determination, in accordance with our practice. Comment 6: Valuation of Ferrosilicon and Dolomite In the preliminary determination, the Department based the surrogate values for ferrosilicon and dolomite on price quotations from an Indian ferro-alloy producer, Tata International Limited (Tata). The petitioners argue that the Department's use of these single price quotations is contrary to its established practice of using a range of prices to value raw material inputs. To illustrate their argument, the petitioners cite the preamble to the Department's regulations (see Comment 5, above) as well as to Glycine from the PRC at Comment 2, Manganese Metal at Comment 9, Hand Tools at Comment 6, Creatine at Comment 1, and Sebacic Acid from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 62 FR 10,530, 10534 (Mar. 7, 1997) (Sebacic Acid). The petitioners contend that the Department should instead value ferrosilicon and dolomite using annual average financial report data submitted in their February 13, 2001, submission on surrogate values and in the petition. Specifically, the petitioners provided summary financial data from the website www.indiainfoline.com, which shows total consumption and costs of these raw materials for various Indian companies. (11) Therefore, the petitioners maintain that the use of their data better represents the Department's longstanding practice of choosing surrogate values that represent broad-based industry averages when valuing raw materials, and that it is less distortive than the single price quotations used by the Department in the preliminary determination. Minmetals agrees with the Department's use of the Tata price data in the preliminary determination, claiming that it is the most contemporaneous and product-specific data available on the record. The respondent counters the petitioners' argument by stating that the Department normally does not base the surrogate value for material inputs on a producer's financial statements if more reliable data is available. Moreover, the respondent alleges that the cases cited by the petitioners, such as Manganese Metal and Creatine, do not support their position because the cases generally involved the selection of aggregate import statistics, rather than data collected from individual financial statements. According to Minmetals, the financial statements submitted by the petitioners are unreliable because they lack details regarding the specifications and sales terms of the products, as well as information about the source countries. Citing to Manganese Metal, Minmetals reiterates that the Department has preferred price quotes over aggregate data in cases where price quotes were more product-specific, reliable or contemporaneous with the POI. In this case, the respondent claims that the use of the petitioners' data is inappropriate because it is less contemporaneous than the Tata price quote, in addition to being less reliable and product-specific. Therefore, the respondent argues that the Department should continue to base the surrogate values for ferrosilicon and dolomite on the Tata price information for the final determination. Department's Position: As noted in our position to Comment 5 above, the Department generally prefers to use a range of prices for the input being valued, rather than a single price quote. However, the Department may prefer the use of a price quote over an aggregate price range if the price quote is more product- specific or otherwise more representative of the input being valued than the aggregate price data. See Manganese Metal at Comment 9. We agree with the petitioners that average yearly data, such as the data which might be available in annual reports, could provide a better choice for a surrogate value than a single price quote. However, in this case, we find that the financial data provided by the petitioners, although publicly available online, does not provide enough information for the Department to ascertain its appropriateness. Specifically, we cannot determine from the website any specific details about whether the inputs were bought domestically or imported, from which countries the inputs may have been imported, whether the reported costs are inclusive or exclusive of taxes, or any specifications about the inputs in question. On the other hand, the Tata price quotes provided by Minmetals are exclusive of Indian taxes and represent domestic prices for ferrosilicon and dolomite during the POI. Therefore, we have continued to value ferrosilicon and dolomite using the Tata price quotes. Comment 7: Marine Insurance Adjustment for Inflation In the preliminary determination, the Department valued marine insurance using information used in Tapered Roller Bearing and Parts Thereof, Finished and Unfinished, From the People's Republic of China: Preliminary Results of 1998-1999 Administrative Review, Partial Rescission of Review, and Notice of Intent to Revoke Order in Part, 65 FR 41944, 41948 (July 7, 2000). These rates were adjusted for inflation. Minmetals argues that the Department should not adjust marine insurance for inflation. The respondent claims that, since marine insurance charges are expressed as a percentage of the value of the cargo, it is inappropriate to adjust the rate for inflation unless there is evidence that marine insurance rates increased at a greater pace than sales revenue. The petitioners did not comment on this issue. Department's Position: We agree with Minmetals. The selected surrogate value represented a marine insurance rate, rather than a per-unit expense. Accordingly, for the final determination, we have not adjusted the marine insurance rate to account for inflation because we have no reason to believe that this rate changed over time due to inflation. Comment 8: Ocean Freight Minmetals reported in its questionnaire response that it shipped subject merchandise to the United States using market economy carriers and that it paid for these expenses in a market economy currency. For purposes of the preliminary determination, however, we found that Minmetals failed to establish a link between the prices charged by the market economy carriers and the prices paid by the respondent. Nonetheless, we used the submitted ocean freight expenses as surrogate values because they were POI prices set by market economy suppliers in U.S. dollars, and, as such, they represented better surrogate values than the other surrogate information on the record for ocean freight. Minmetals asserts that, during verification, it was able to demonstrate to the Department that ocean freight charges were incurred in U.S. dollars and paid to a Hong Kong freight forwarder. Thus, Minmetals argues that the Department should deem Minmetals' ocean freight transactions as market economy transactions and use Minmetals' actual ocean freight expenses in the margin calculation. The petitioners did not comment on this issue. Department's Position: In accordance with 19 CFR 351.408(c)(1), in NME cases the Department values inputs which a respondent purchased from a market economy supplier in a market economy currency using the actual price paid by the respondent. In this case, we reviewed the documents presented by Minmetals at verification and found that these documents establish that Minmetals purchased ocean freight from market-economy carriers and paid for the freight in a market-economy currency. (12) Therefore, for purposes of the final determination, we have accepted the ocean freight expenses reported by Minmetals, in accordance with our practice. Comment 9: Treatment of Fluorite Powder as Overhead Expense vs. Direct Material Input In its questionnaire response, Minmetals reported fluorite powder as a direct material. Accordingly, for purposes of the preliminary determination, the Department valued fluorite powder using surrogate value data. Minmetals argues that the Department should reconsider this treatment and classify fluorite powder as part of overhead expenses. Minmetals stated that it informed the Department that it had classified this material as a direct input in error, and that the Department examined this issue at verification. Specifically, Minmetals notes that the verification report reflects that fluorite powder is used merely to "line the molds that hold the pure magnesium which is formed into ingots," and is not physically incorporated into the finished magnesium product. Moreover, Minmetals points out that Taiyuan's accounting records show that the company treats fluorite powder as an auxiliary material instead of a direct raw material, and that fluorite powder is described as an "auxiliary material" in the cost table in Exhibit 5 of the Taiyuan verification report. Minmetals maintains that fluorite powder is consistent with the type of materials that the Department has previously classified as indirect, such as reducing vessels in Pure Magnesium, and brake molds in Final Determination of Sales at Less Than Fair Value: Brake Drums and Brake Rotors from the People's Republic of China, 62 FR 9160, 9169 (Feb. 28, 1997) (Brake Rotors). The respondent also contends that the Department should consider fluorite powder as a minor indirect material to be included as a component of overhead expense, consistent with its practice as discussed in Synthetic Indigo from the People's Republic of China; Notice of Final Determination of Sales at Less Than Fair Value, 65 FR 25706 (May 3, 2000) and accompanying decision memorandum at Comment 8. The petitioners agree with the Department's treatment of fluorite powder as a direct material input, and assert that such treatment is consistent with the Department's practice in other proceedings, as well as the magnesium industry's treatment of the input in general. The petitioners argue that the Department has established clear standards for distinguishing direct from indirect inputs. Citing to the Preliminary Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from the People's Republic of China, 62 FR 31972, 31977 (June 11, 1997) and Brake Rotors, the petitioners assert that in previous cases, the Department has referred to the definition contained in the "Compendium of Statements and Standards: Accounting (India)," which states that to be considered as part of factory overhead, a material must "assist the manufacturing process, but...not enter physically into the composition of the finished product." The petitioners also contend that the Department has noted elsewhere that inputs are generally considered to be direct materials when "they are required for a particular segment of the production process," for which a standard item will not suffice, such as in the Final Determination of Sales at Less Than Fair Value: Manganese Metal from the People's Republic of China, 60 FR 56045, 56051 (Nov. 6, 1995) and the Final Determination of Sales at Less Than Fair Value: Saccharin from the People's Republic of China, 59 FR 58818, 58824 (Nov. 15, 1994). The petitioners also maintain that such treatment is consistent with Minmetals' treatment of fluorite powder in its February 27, 2001, supplemental questionnaire response, as well as Taiyuan's classification of the item in its accounting records, as discussed in the Taiyuan verification report. Citing the verification report issued for Taiyuan in this case, the petitioners claim that the Department verified that the powder is included in Taiyuan's "direct material costs that are transferred to the company's cost of production." The petitioners allege that Minmetals requested the reclassification of this input after the preliminary determination for the sole purpose of lowering its factors values, and thus its dumping margin. The petitioners counter Minmetals' claim that fluorite powder constitutes the same type of material that the Department has classified as indirect in previous cases. The petitioners explain that, unlike the molding materials at issue in Brake Rotors, the fluorite powder used to line the molds is actually subsumed into the magnesium ingot during the production process. In contrast, the petitioners note that brake molds are not incorporated into the final product and, moreover, are classified as indirect materials by Indian accounting standards. Likewise, the petitioners contend that, because fluorite powder is exhausted in the production of the magnesium ingot, it is different from the reducing vessels used in Pure Magnesium. Finally, the petitioners also state that in the previous investigation and reviews of pure magnesium, (13) the Department has classified fluorite powder as a direct material input. For these reasons, the petitioners urge the Department to continue to treat fluorite powder as a direct material input for purposes of the final determination. Department's Position: During verification, the Department observed that Tiayuan does not treat fluorite powder as an auxiliary material in its normal books and records. Specifically, the Tiayuan verification report states that "[d]uring the review of the company's accounting system, we noted that Taiyuan includes fluorite powder costs in its direct materials costs that are transferred to the company's cost of production." This statement is supported by the cost table presented by Tiayuan during the verification, which is included in verification exhibit 7, which indicates that costs and consumption of fluorite powder are tracked separately, and are added into the total cost of raw materials used to derive the total cost of production. See the June 26, 2001, Memorandum for Louis Apple from Jim Nunno and Jennifer Gehr entitled Verification of the Questionnaire Responses of Taiyuan Shi Geng Yang Enterprise Company, Ltd. in the Antidumping Duty Investigation of Granular Pure Magnesium from the People's Republic of China, at page 1 and exhibit 7. In addition, there is no evidence that fluorite powder is treated as factory overhead by Southern Magnesium. Therefore, we consider Taiyuan's treatment of the input as a direct input as an indication that the input should be valued separately and not treated as factory overhead. Accordingly, we have continued to classify fluorite powder as a direct material input for purposes of the final determination. We further note that our treatment of fluorite powder as a direct material input is consistent with our classification of this input in prior reviews of pure magnesium. See Pure Magnesium, 63 FR at 3090. Comment 10: Valuation of Taiyuan's July 2000 Electricity Consumption Factor According to the petitioners, the Department was unable to verify the electricity consumption factor reported by Taiyuan for July 2000. The petitioners assert that Taiyuan's failure to prepare properly for the verification, despite having received the agenda prior to verification, amounts to a failure by Taiyuan to cooperate to the best of its ability with the Department. Therefore, the petitioners argue that the Department must resort to facts available for this information, in accordance with the statute. Consequently, the petitioners urge the Department to apply the highest energy consumption factor for any month reported by Taiyuan during the POI as the electricity factor for July. Minmetals states that the use of adverse facts available is not appropriate since the information submitted was verifiable. The respondent argues that Taiyuan fully cooperated with the Department at verification by preparing and presenting source documents as noted in the verification agenda, providing supplemental documentation requested by the Department, and providing explanations of these documents. Minmetals claims that the Department officials failed to notify the company that they were unable to reconcile the electricity figures for July 2000, and that the Department opted not to continue verifying energy consumption due to time constraints. Moreover, the respondent claims that company officials at Taiyuan were prepared to continue verifying any item requested by the Department, but were not given the opportunity to do so due to time constraints imposed by the Department officials. In any event, Minmetals argues that the use of facts available is unwarranted because the energy consumption factors for July 2000 can be verified using the source documents contained in the Department's verification exhibits. Specifically, Minmetals provided as an attachment to its rebuttal brief certain documents which were purportedly examined during verification. Minmetals then tied these invoices to the reported consumption factor for July 2000 in Minmetals' questionnaire response. Department's Position: In Attachment 2 of Minmetal's rebuttal brief, the respondents included copies of several electricity invoices bearing the same invoice numbers as the documents examined during verification and included in Verification Exhibit 8 of the Taiyuan verification report. However, upon the Department's subsequent examination of the invoices in question, it appears that several invoices included in the verification exhibit have been excluded from the respondent's calculation in its rebuttal brief. Moreover, with respect to one invoice number in particular, (14) it appears that the kilowatt hour consumption number on the copy of the invoice given to the Department at verification is different from, or altered from, the kilowatt consumption number on the invoice that Minmetals has supplied in its rebuttal brief. In light of this discrepancy, the Department must rely on the document as it was presented at verification. Therefore, the Department continues to find, as stated in the Taiyuan verification report, that it is unable to link the electricity consumption number reported for Taiyuan to source documentation. We disagree with Minmetals' argument that unfair time constraints were imposed at verification. Indeed, we note that the Taiyuan verification was actually extended by an extra day over the total time which had been scheduled, in order to provide the company additional time to complete several of the outstanding items. (15) As both the petitioners and the respondent have pointed out, an agenda was provided to Taiyuan prior to the verification explaining precisely which source documents the Department intended to review. We also note that the source documents were readily accessible to the respondents, as the relevant documents were presented at verification and have also been included in Minmetals' rebuttal brief. Section 776(a)(2) of the Act provides that if a respondent fails to provide necessary information in a timely manner or provides information which cannot be verified, the Department may rely on facts otherwise available. Section 776(b) of the Act provides that in cases where the respondent "fails to cooperate by not acting to the best of its ability to comply with a request for information," the Department may use an inference that is adverse in selecting from among the facts otherwise available in reaching the applicable determination. In this case, Taiyuan possessed the necessary documentation to support the July 2000 electricity consumption figure but failed to provide it, despite the advance notice of the verification item and the extra time provided by the Department officials. Therefore, we conclude that Taiyuan's electricity consumption figure could not be verified, requiring application of facts available under section 776(a)(2) of the Act. Moreover, because it is apparent that Taiyuan had the information necessary to permit verification of this figure, but did not provide it, Taiyuan has not acted to the best of its ability. Because Taiyuan did not cooperate with the Department to the best of its ability, we find that it is appropriate for us to resort to adverse facts available for the July 2000 electricity consumption factor for Taiyuan. As adverse facts available we have applied the highest monthly consumption amount of any other month verified for Taiyuan in this investigation. Comment 11: Correction of Taiyuan's Direct Labor Hours Minmetals claims that an error was made by the Department in Taiyuan's verification report, which should be corrected for the record. Minmetals argues that the Department's recalculation of Taiyuan's labor hours, discussed at page 10 of the verification report, was arithmetically incorrect. Consequently, Minmetals has submitted a corrected calculation for the Department's review, which has been included as Attachment 3 to Minmetal's case brief dated July 9, 2001. The petitioners did not comment on this issue. Department's Position: Upon careful re-examination of the Department's calculation of Taiyuan's labor hours, we have concluded that no error was made on the part of the Department. Rather, upon examination of the recalculation submitted by Minmetals, it appears that the monthly total for April 2000 was excluded from the POI total. We note that, by summing the monthly totals in Minmetals' spreadsheet for all six months of the POI, we arrive at the same number which is contained in the Department's verification report. Therefore, for the final determination, we have based Taiyuan's direct labor hours on our verification findings, as described in the Taiyuan verification report. Comment 12: Correction of HEBI's Packing Material Weights Minmetals notes that, during the verification of HEBI, the Department noted a number of corrections in the weights of packing materials, as cited in Appendix III of the HEBI verification report. Minmetals contends that the Department should use the corrected weights to value packing materials for the final determination. The petitioners did not comment on this issue. Department's Position: We agree. For the final determination, we have revised our calculations for packing materials to use the weights which are set forth in Appendix III of the HEBI verification report. Comment 13: Treatment of Magnesium Shreds In the preliminary determination, the Department did not grant HEBI an offset to its production costs related to the quantity of magnesium shreds generated in the process of grinding magnesium ingot into powder, due to the lack of sufficient information regarding the ultimate disposition of the shreds. (16) Minmetals contends that, during the HEBI verification, the Department noted that both shreds and powder were included in the company's finished goods ledger. Minmetals argues that because the shreds were tracked in the finished goods inventory ledger, the Department was able to verify that the shreds are in fact salable goods. Minmetals also argues that because costs are incurred in the grinding process for both granular magnesium and magnesium shreds, excluding shreds from the total production quantity would improperly attribute all raw materials to granular magnesium. Therefore, Minmetals asserts that the Department should not deduct the quantity for shreds from the total production quantity in the final determination. The petitioners argue that the Department should continue to exclude magnesium shreds from HEBI's total production volume. The petitioners claim that, contrary to Minmetals' argument, the Department was not able to verify that magnesium shreds were actually sold as a separate product. While the verification report indicates that the shreds were "kept in separate bags" from the magnesium powder, the petitioners contend that this does not indicate that the shreds were in fact anything more than a mere waste product. The petitioners further argue that since HEBI failed to demonstrate at verification that shreds were actually sold as a separate product, no cost should be allocated to the shreds generated in the production of magnesium powder. Department's Position: We examined this issue at verification and found that HEBI did not receive any revenue for the sale of magnesium shreds during the POI. Moreover, we were unable to discern the ultimate disposition of the shreds from HEBI's books and records. Because HEBI was unable to demonstrate that it sold shreds during the POI, we continued not to allow an offset for shreds in the final determination. Comment 14: Revision to the Scope of the Investigation The scope of the investigation currently excludes certain magnesium-based reagent mixtures. Specifically, the relevant language states the following: mixtures containing 90 percent or less pure magnesium, by weight, when mixed with lime, calcium metal, calcium silicon, calcium carbide, calcium carbonate, carbon slag coagulants, and/or fluorspar, are excluded. See the Preliminary Determination, 66 FR at 21315. We received comments on the scope definition from two parties, ESM Group, Inc. (ESM) and Rossborough. Both of these companies are U.S. producers of magnesium-based reagent mixtures and importers of magnesium products. According to ESM and Rossborough, the Department has defined the reagent mixtures excluded from the scope too narrowly. Specifically, both parties contend that the Department failed to exclude mixtures made with any of the following additional additives: magnesium oxide, periclase, ferroalloys, dolomitic lime, nepheline syenite, feldspar, aluminum, alumina (Al2O3), calcium aluminate, soda ash, hydrocarbons, graphite, coke, silicon, rare earth metals/mischmetal, cryolite, colemanite, and silica/fly ash. Moreover, both ESM and Rossborough contend that the Department should clarify that the above list of additives is illustrative only and that any mixtures containing additional additives used to make magnesium-based reagents are excluded from the scope. For example, ESM notes that both melamine and silicone oil are added to pure magnesium to make desulfurization reagents, as are certain other combinations of additives used in the production of proprietary reagent mixtures. Consequently, ESM proposes that the Department add the following language to clarify that all magnesium-based reagents are excluded: ". . . and/or any other non- magnesium granular material(s) to make desulfurization reagents, are excluded." Similarly, Rossborough proposes that the Department delete the list noted above and substitute the following language: "…except that mixtures containing 90 percent or less pure magnesium, by weight are excluded." In addition, Rossborough requests that the Department should insert an "actual use" provision into the scope in order to exclude magnesium in granular form imported for use in producing reagent mixtures. According to Rossborough, the U.S. granular magnesium industry has been adversely affected by the provisional measures entered under the antidumping and countervailing duty laws in response to the current petition. Rossborough contends that all domestic producers of reagent mixtures depend upon imports of magnesium (principally granular magnesium) for their grinding and mixing operations to remain competitive, and that if the antidumping and countervailing duty orders are put into place, then reagent mixtures would simply be imported in finished form and the domestic industry producing those reagent mixtures would be devastated. As a result, Rossborough argues that the petitioners would, in turn, have no domestic or export market for future sales of pure magnesium to producers of mixtures, whether in ingot or granular form. Rossborough acknowledges that the petitioners have previously opposed an "actual use" provision in their June 20 letter, but it asserts that the petitioners' arguments on this matter are without merit, since the petitioners do not produce granular magnesium and will most likely be unable to supply the needs of the U.S. granular magnesium industry in the foreseeable future, regardless of the outcome of the antidumping and countervailing duty investigations. Rossborough also maintains that while "actual use" provisions are not common in U.S. tariff law generally, they are not unprecedented and have been adopted to achieve particular objectives. Rossborough further argues that U.S. tariff law contains established procedures for the effectuation of actual use procedures which would be available for the purpose contemplated here. (17) According to Rossborough, the burden of proof of the actual use would fall on the importer, and because the U.S. Customs Service may liquidate entries adversely to the importer if satisfactory and timely proof of the required use is not shown, the established actual use procedures contain safeguards against possible circumvention. Moreover, Rossborough argues that false certifications of use would subject the importer to substantial penalties under 19 U.S.C. § 1592 and other provisions of the law. The petitioners have agreed to a clarification of the scope that results in the exclusion of all known magnesium-based reagent mixtures. Furthermore, the petitioners do not object to the inclusion of additional substances in the comprehensive list of known magnesium-based reagent mixtures in the proposed scope language. However, the petitioners object to the inclusion of both melamine and silicone oil in this list because they may easily be separated from granular pure magnesium by being "burnt- off" from the granular pure magnesium. (18) According to the petitioners, once burnt-off, they would leave little residue that would alter the chemical composition or purity of the pure magnesium. The petitioners assert that, because this would allow these mixtures to be used in place of pure magnesium in applications where pure magnesium is normally used, with little cost consequences, there would be the potential for easy circumvention of any resulting order through mixing of subject merchandise with these substances. Moreover, the petitioners oppose the alternative scope language proposed by ESM, which would make the list of additive illustrative rather than comprehensive. The petitioners argue that the Department should deny ESM's request on the grounds that it would require the U.S. Customs Service to determine the actual use of the imported mixture on a case-by-case basis, and it would make the order difficult to administer properly. For those companies which may have reagent mixtures which are proprietary in nature, the petitioners suggest that they should submit the information to the Department under an administrative protective order, and then the Department could share this information with U.S. Customs on a confidential basis. However, the petitioners maintain that U.S. Customs should not be permitted to make scope determinations independently of the Department at the time of entry. Alternatively, the petitioners agree to ESM's proposal under the condition that the Department also explicitly state in the scope language that it will require importers to seek a scope ruling from the Department regarding reagent mixtures composed of materials not specifically provided for in the scope. The petitioners note that this language has three advantages: 1) it will protect against circumvention through the importation of non-legitimate reagent mixtures; 2) it is enforceable by U.S. Customs; and 3) it creates a transparent process in which all parties are accorded due process. Consequently, the petitioners propose the following additional language: and/or any other non-magnesium granular material(s) to make magnesium- based reagent mixtures, are excluded. If an imported mixture contains 90 percent or less pure magnesium, by weight, and any other non-magnesium granular materials not identified in the above list, the importer is required to seek a scope clarification from the Department of Commerce before such a mixture will be excluded from the scope of this order. The petitioners note that the above language is slightly altered from ESM's proposal to reflect the fact that magnesium-based reagent mixtures are possibly used in applications other than steel desulfurization, such as in organic chemistry applications. According to the petitioners, as long as the reagent mixture imported is a legitimate mixture used in specific applications, it should be considered a downstream product which should be excluded from the scope of this investigation. The petitioners oppose Rossborough's proposal that all granular magnesium, if imported for use in producing reagent mixtures, be excluded from the scope of the order. The petitioners argue that the very purpose of the inclusion of granular pure magnesium in the petition against imports of pure magnesium from the PRC is to obtain relief from such imports, which have unfairly displaced domestic production of magnesium- based reagent mixtures for the desulfurization segment of the market. Moreover, the petitioners note that granular magnesium has been included in the scope of the petitions against pure magnesium from the Russian Federation and Israel to prevent circumvention of the order through the simple mechanical process of grinding the subject ingot into granular form. (19) The petitioners contend that any alteration of the scope of the investigation to exclude granular pure magnesium imported for use in magnesium-based reagent mixtures would directly contradict the express intent of the petition. Citing to the decision reached in Mitsubishi Heavy Industries, Ltd. v. United States, 986 F. Supp 1428, 1432-33 (CIT 1997) (Mitsubishi Electric), the petitioners assert that, although the Department has the authority to alter the scope of an investigation, the Court of International Trade has recognized that any alterations must reflect the intent of the petition. Based on that finding, the petitioners argue that the Department may not alter the scope in the manner suggested by Rossborough, because it would contradict the express intent of the petition. Minmetals opposes altering the scope of the investigation. Minmetals did not provide any reasoning to support this position, however. Department's Position: It is well established that the Department has the ultimate authority under the statute to define the class or kind of merchandise subject to its proceedings. (20) Thus, the Department has the authority both to limit and to expand the class or kind alleged in the petition. (21) This authority notwithstanding, it has generally been the policy of the Department to accept the class or kind of merchandise alleged in the petition absent some overarching reason to modify that class or kind. This policy stems from the fact that the domestic industry is in the best position to identify the imports that they compete against and believe to be unfairly traded. In letters dated January 30, June 20, and August 27, 2001, the petitioners stated that they had no objection to clarifying the scope to exclude mixtures made using each of the additives noted by Rossborough, given that their intent was to exclude all legitimate magnesium-based reagent mixtures from the scope of the investigation. Therefore, we have added each of these materials to the list contained in the existing scope. We have not included melamine or silicone oil in this list, however, because: (1) the petitioners' object to their inclusion; and (2) sufficient information does not exist on the record at this time to evaluate whether these materials are used to make legitimate magnesium- based reagents. (22) Concerning Rossborough's proposal that all granular magnesium, if imported for use in producing reagent mixtures, be excluded from the scope of the order, we note that the petitioners revised their position on this issue in their August 27, 2001, submission. In that submission, the petitioners state that they do not object, in theory, to the idea that the list of excluded magnesium-based reagents is "illustrative only" and not comprehensive, as originally intended. Petitioners agree that legitimate reagent mixtures should be excluded from the scope of the orders, but are concerned about possible circumvention through the importation of non- legitimate reagent mixtures. The petitioners have agreed not to limit the exclusions to reagent mixtures explicitly identified in the above list under the condition that the Department revise the scope language to require that importers seek a scope ruling from the Department regarding reagent mixtures composed of materials not specifically provided for in the scope. The petitioners note that this language has three advantages: 1) it will protect against circumvention through the importation of non- legitimate reagent mixtures; 2) it is enforceable by U.S. Customs; and 3) it creates a transparent process in which all parties are accorded due process. In their August 27, 2001, submission, the petitioners proposed that the Department insert at the end of the list of reagent mixture substances the following additional scope language: and/or any other non-magnesium granular material(s) to make magnesium- based reagent mixtures, are excluded. If an imported mixture contains 90 percent or less pure magnesium, by weight, and any other non-magnesium granular materials not identified in the above list, the importer is required to seek a scope clarification from the Department of Commerce before such a mixture will be excluded from the scope of this order. According to the petitioners, as long as the reagent mixture imported is a legitimate mixture used in specific applications, it should be considered a downstream product which should be excluded from the scope of this investigation. Because petitioners' position is in accordance with the intent of the petition (i.e., it provides for the exclusion of magnesium-based reagents), we are amending the scope to account for this. We note that the addition of language instructing importers to request scope rulings by the Department in cases where the mixtures in question contain additives other than those specifically identified above addresses the petitioners' concern that the Department might otherwise be improperly delegating to Customs the authority to determine the scope of the order. Regarding Rossborough's proposed "actual use" provision, we disagree with Rossborough's proposal that we exclude granular magnesium imported for use as an input into the production of magnesium-based reagents. In this case, we find that such an exclusion is not only contrary to the intent of the petition, but it is particularly inappropriate because it would allow companies to circumvent the intent of the dumping order (should one be issued). Specifically, we find that Rossborough's argument in its simplest form is that the U.S. reagent industry needs a continuous source of cheaply-priced (i.e., dumped) magnesium in order to survive. We find that this argument fails because U.S. antidumping law does not allow the Department to consider the effect of dumping duties on downstream industries. Indeed, given its remedial nature, we find that the Department's active sanctioning of dumping of products intended to be covered by the scope of a petition would be contrary to both the spirit and the letter of the law. The purpose of the antidumping law is to allow domestic industries to compete for sales at prices that are fair. This allows companies to maintain employment and profit levels that they would otherwise not achieve, which benefits the U.S. economy as a whole. For this reason, the Department generally follows the intent of a petition in determining what products are covered, and this practice has been upheld by the courts. See, e.g., Mitsubishi Electric. Because the intent of the petition is clear in this case, we have continued to include granular magnesium in the scope, regardless of the use for which it is imported. Comment 15: Reconsideration of Industry Standing Rossborough argues that the Department should recognize that granular magnesium and nongranular magnesium are not the same class or kind of merchandise. Rossborough maintains that granular magnesium is used principally as a desulfurization agent or in the production of magnesium reagent mixtures, whereas magnesium ingots cannot be used for such applications. As such, Rossborough states that there is no overlap between the domestic producers of magnesium ingot and the domestic producers of granular magnesium. Citing to past cases such as Notice of Preliminary Determination of Sales at Less Than Fair Value: Pure and Alloy Magnesium from Norway, 57 FR 6092 (Feb. 20, 1992) and Preliminary Determination of Sales at Less Than Fair Value: Pure and Alloy Magnesium from Canada, 57 FR 6094-5 (Feb. 20, 1992), Rossborough argues that the Department has excluded granular magnesium from the scope of previous investigations, having determined that granular and non-granular magnesium are "two distinct products appealing to completely different markets" and that these two products are not the same class or kind of merchandise. Therefore, Rossborough urges the Department to rescind the initiation of the investigation with respect to granular magnesium. Rossborough argues that the petitioners in this case lack standing to represent the interests of the granular magnesium industry. Rossborough claims that because one of the petitioners (i.e., MagCorp) has stated publicly that is does not produce granular magnesium and it does not intend to do so, it is not a member of the granular magnesium industry and should not be deemed to represent the interests of that industry in this investigation. Rossborough contends that the petitioners do not meet the standing requirements of the statute. Specifically, Rossborough claims that for purposes of industry support as stipulated by section 732(c)(4)(A) of the Act, the petition lacks the support of producers or workers accounting for at least 25 percent of the total domestic production of granular magnesium, or at least 50 percent of the total production of the granular domestic like product produced by that portion of the granular magnesium industry expressing support for, or opposition to, the petition. The petitioners argue that as a matter of law, the Department is prohibited from revisiting the issue of standing. According to the petitioners, the statute provides that an interested party may challenge the domestic industry's support for a petition prior to initiation of an investigation, but may not revisit the issue after initiation. In support of their argument, the petitioners cite to sections 732(c)(4)(E) and 702(c)(4)(E) of the Act, which state that "after the administering authority makes a determination with respect to initiating an investigation, the determination regarding industry support shall not be reconsidered." The petitioners also cite to the Statement of Administrative Action (SAA) accompanying the Uruguay Round Agreements Act (23), which states that "the question of industry support will be resolved conclusively at the outset of a proceeding, thereby eliminating the burden on petitioners under current law of potentially rearguing this issue after initiation." The petitioners note that in prior investigations, the Department has indicated that this statutory language prohibits reconsideration of the petitioners' standing, even in cases where parties have argued that petitioners would lack standing as a result of a redefinition of the scope of the investigation. To illustrate their point, the petitioners cite to Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushrooms from Chile, 63 FR 56613, 56616 (Oct. 22, 1998), Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR 31411, 31419 (June 9, 1998) (Salmon from Chile), and Notice of Preliminary Affirmative Countervailing Duty Determination and Alignment with Final Antidumping Duty Determination: Low Enriched Uranium from France, 66 FR 24325-6 (May 14, 2001). The petitioners further assert that the scope of the petition was intended to cover pure magnesium, regardless of chemistry, form, or size, and was written to include magnesium in both ingot and granular form. The petitioners maintain that they have already submitted evidence demonstrating that pure magnesium in ingot and granular form comprise a single domestic like product, and that under this definition of scope the petitioners have industry standing. Moreover, the petitioners point out that challenges to the petition's definition of scope and to the petitioners' standing have already been submitted by interested parties prior to the initiation of this investigation. The petitioners cite to the November 6, 2000, memorandum from the team to Richard W. Moreland, Deputy Assistant Secretary, entitled "Like Product and Industry Support Determinations in the Antidumping Duty Investigations of Pure Magnesium from Israel, the People's Republic of China, and the Russian Federation and the Countervailing Duty Investigation of Pure Magnesium from Israel," (the Like Product Memo), in which the Department concluded that "pure magnesium in all forms" constituted a single like product and that the petition was supported by the requisite share of the domestic industry according to the Act. The petitioners assert that, since Rossborough merely references arguments it submitted prior to the Department's initiation of this investigation, and no new evidence or argument has been placed on the record to support a re-examination of the Department's determinations of like product and industry standing, the Department has no reason to change its determinations. The respondent did not comment on this issue. Department's Position: Section 732(c)(4)(E) of the Act provides that, after the administering authority determines that it is appropriate to initiate an investigation, the determination regarding industry support shall not be reconsidered. Therefore, consistent with our decision in Salmon from Chile, we have not reconsidered our determination regarding industry support in this investigation. We refer interested parties to our notice of initiation and companion memorandum, which set forth in detail the methodologies followed in establishing industry support. See Initiation of Antidumping Duty Investigations: Pure Magnesium from Israel, the Russian Federation, and the People's Republic of China, 65 FR 68121 (Nov. 6, 2000), and the Like Product Memo. Regarding Rossborough's argument that pure magnesium in ingot and granular forms represent two classes or kinds of merchandise, we note that this argument is not relevant because the scope of this investigation includes only granular magnesium. As a consequence, Rossborough's comments provide no basis for altering this final determination. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final determination in the Federal Register. Agree ______ Disagree ______ ______________________ Faryar Shirzad Assistant Secretary for Import Administration ______________________ (Date) _____________________________________________________________________ footnotes: 1. We note that the petitioners miscited this case as Welded Stainless Steel Butt-Weld Pipe Fittings from Taiwan. 2. See also Asociacion Colombiana de Exportadores de Flores v. United States, 13 CIT 13, 15, 704 F. Supp. 1114, 1117 (1989), aff'd, 901 F.2d 1089 (Fed. Cir. 1990). 3. The petitioners claim that in other NME cases where the issue of combination rates has been raised, the arguments were based entirely on speculation. See, e.g., Manganese Metal From the People's Republic of China; Final Results and Partial Rescission of Antidumping Duty Administrative Review, 63 FR 12440, 12448-9 (Mar. 13, 1998); and Notice of Final Determination of Sales at Less Than Fair Value: Persulfates From the People's Republic of China, 62 FR 27222, 27228 (May 19, 1997). 4. Regarding the petitioners' argument that they should not bear the burden of assessing whether an exporter has become a conduit for new producers, we note that because Minmetals is the only exporter to whom the Department has granted a separate rate, the burden required of the petitioners in determining whether to request an administrative review for Minmetals should be minimal. 5. The only exception to this rule is when an NME entity exports to a third country reseller with knowledge that the reseller will ship the merchandise to the United States. 6. Minmetals further explains this argument in its letter to the Department dated April, 17, 2001. 7. Publicly available financial data for Hindalco Industries Ltd. National Aluminum Co. Ltd, and Indian Aluminum Co. Ltd. can be accessed online at www.indiainfoline.com. In addition, publicly available financial data for Bharat Aluminum Company Limited can be accessed online at www.balcoindia.com. 8. Specifically, in 1999 the company's overhead represented 14.21 percent of its cost of materials, labor, and energy, while it represented only 10.79 percent of these costs in the following year. 9. This, however, does not mean that we would always prefer the producer- specific data, if we were presented with industry and producer data that were equally specific in terms of the merchandise produced. See Notice of Final Determination of Sales at Less Than Fair Value: Bulk Aspirin From the People's Republic of China, 65 FR 33805 (May 25, 2000) and accompanying decision memorandum at Comment 4. 10. According to the website www.indiainfoline.com, there are five aluminum producers in India. Data from three of these producers was placed on the record by the petitioners in their March 30, 2001, submission. We obtained data on an additional company from its own website at www.balcoindia.com. Based on the most recent production data shown on www.indiainfoline.com, these four producers represent the vast majority of aluminum production in India. 11. For ferrosilicon, the petitioners have identified several Indian industrial users that reported recent data on their raw material usage in their financial statements for the year ending in March 2000, including Steel Authority of India Ltd., Tata Iron and Steel Co. Ltd., Electrosteel Castings Ltd., and Lakshmi Machine Works. For dolomite, the petitioners assert that publicly available information for Steel Authority of India Ltd. indicates that the average unit values of its dolomite use in 2000 is comparable to the values reported in Southern Magnesium's and Hira Ferro Alloy's financial statements for previous years. 12. See the June 21, 2001, Minmetals/CNNMIT verification report at pages 13-15 and Exhibit 7. 13. The petitioners cite to Pure Magnesium, 63 FR at 3087, Pure Magnesium from the People's Republic of China: Preliminary Results of New Shipper Review, 62 FR 55215, 55218 (Oct. 23, 1997), and Volume II of the petition filed in this case at page 3 of Exhibit 2. 14. The Department refers to the second invoice number listed at the top of page 11 of the respondent's July 17, 2001, rebuttal brief. Because Minmetals claimed business proprietary treatment for this number, we are unable to disclose it here. 15. The verification, which originally had been scheduled for two days, was extended over the weekend in order to give the company a chance to complete outstanding items. The Department officials also accommodated the Taiyuan company officials by allowing them, at their request, extra time during lunch breaks to prepare certain verification items, such as the electricity consumption figures. 16. See Concurrence Memorandum, dated April 23, 2001, at page 8. 17. Rossborough refers to the Additional U.S. Rule of Interpretation 1(b), HTSUS (2001), and 19 CFR 10.131-10.139. 18. The petitioners' comments on this topic were made on August 27, 2001, in a response to a request from the Department that the petitioners clarify their intent with respect to the scope. 19. The petitioners cite to arguments contained in their October 17, 2000 Petition, Vol. I at pages 31, 33 and 78-79, and Exhibit 24. 20. See Mitsubishi Elec. Corp. v. United States, 898 F.2d 1577, 1582 (Fed. Cir. 1990); and Diversified Products Corp. v. United States, 572 F.Supp. 883, 887 (1983). See also Smith-Corona Group v. United States, 713 F.2d 1568, 1582 (Fed. Cir. 1983), cert. denied, 465 U.S. 1022 (1984). 21. See Mitsubishi Elec. Corp. v. United States, 700 F.Supp. 538, 555 (1988), aff'd, 898 F.2d 1577 (Fed. Cir. 1990); and Torrington Co. v. United States, 745 F.Supp. 718, 721 n4 (CIT 1990). 22. On September 4, 2001, ESM responded to the petitioners' August 27 scope clarification letter. In this submission, ESM provided additional details on the uses of the mixtures in question. However, this submission did not contain sufficient information to allow us to determine conclusively that these mixtures should be excluded from the scope of this investigation. We note that, if ESM chooses to do so, it may raise this issue again in the form of a scope inquiry in the event that an antidumping duty order is issued in this proceeding. 23. The petitioners refer to the SAA, H.R. Doc No. 103-316, Vol. I, 103d Cong., 2d Sess. At 861-63 (1994).