65 FR 49537 August 14, 2000 A-570-825 AR 07/01/98-06/30/99 IA I/2:CDP Public Document MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary, Group 1 Office of AD/CVD Enforcement SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Administrative Review of Sebacic Acid from the People's Republic of China for the period July 1, 1998, through June 30, 1999; Final Results SUMMARY We have analyzed the briefs and rebuttal briefs of interested parties in the 1998-1999 administrative review of the antidumping duty order covering sebacic acid from the People's Republic of China. As a result of our analysis, we have made changes, including corrections of certain inadvertent clerical errors, in the margin calculations for these final results of review. We recommend that you approve the positions we have developed in the Discussion of the Issues section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments and rebuttal comments from interested parties: Issue 1: Acceptance of the Respondents' April 28, 2000, Surrogate Value Submission Issue 2: Capryl Alcohol Valuation Issue 3: Water Valuation Issue 4: Activated Carbon and Macropore Resin Valuation Issue 5: Caustic Soda Valuation Issue 6: Capryl Alcohol and Glycerine Purity Level Adjustments Issue 7: Hengshui Dongfeng Chemical Factory's Castor Seed Freight Valuation and Electricity Valuation Issue 8: International Freight Valuation Issue 9: Brokerage and Handling Valuation Issue 10: Castor Oil and Castor Seed Valuation Issue 11: Phenol Valuation Margin Calculations We calculated export price and normal value using the same methodology stated in the preliminary results, except as follows: 1. We valued activated carbon and macropore resin using only one of the two price quotes relied on in the preliminary results. See Issue 4. 2. We adjusted the surrogate values for capryl alcohol and glycerine to reflect the purity levels reported by the respondents. See Issue 6. 3. We revised the calculation of foreign inland freight for Hengshui Dongfeng Chemical Factory's (Hengshui's) self-produced castor oil to eliminate a mathematical error. See Issue 7. 4. We valued electricity using publicly available Indian data, inflated to the period of review (POR) using an industry-specific index. See Issue 7. 5. We valued ocean freight using data obtained from the Federal Maritime Commission (FMC) for shipments of sebacic acid to the United States during the POR. See Issue 8. For further discussion, see the Factors Valuation Memorandum. 6. We valued castor seed and castor seed oilcake using data taken from the Economic Times of Bombay (Economic Times). See Issue 10. 7. We valued phenol using POR-contemporaneous Chemical Weekly import values. See Issue 11. 8. We valued labor using the 1998 regression-based wage rate for the PRC in accordance with 19 CFR 351.408(c)(3). We obtained this data from the Import Administration's website at . For purposes of the preliminary results we used 1997 data because more recent data was not yet available. 9. We revised the valuation of liquid caustic soda used by Hengshui in the production of sebacic acid to reflect a purity level of 48 percent as reported by Hengshui in its February 28, 2000, submission. 10. We revised the factory overhead calculation to exclude energy and by- products from the base to which we applied the overhead percentage. For further discussion, see the Factors Valuation Memorandum. 11. We revised our calculation of freight for PRC-purchased castor oil to reflect distances between Hengshui and its castor oil suppliers. For further discussion, see the Factors Valuation Memorandum. BACKGROUND On April 10, 2000, the Department of Commerce (Department) published the preliminary results of the 1998-1999 administrative review of the antidumping duty order on sebacic acid from the People's Republic of China (PRC). See Notice of Preliminary Results of Antidumping Duty Administrative Review: Sebacic Acid from the People's Republic of China, 64 FR 18968 (Apr. 10, 2000) (Sebacic Acid Preliminary Results). The merchandise covered by this order are all grades of sebacic acid which include but are not limited to CP Grade, Purified Grade, and Nylon Grade. The POR is July 1, 1998, through June 30, 1999. We invited interested parties to comment on our preliminary results of review. The respondents timely requested a public hearing which the Department held on June 2, 2000. DISCUSSION OF THE ISSUES Issue 1: Acceptance of the Respondents' April 28, 2000, Surrogate Value Submission On April 28, 2000, the respondents submitted publicly available information for the Department's consideration in valuing the factors of production for sebacic acid. The petitioner argues that the Department should reject this submission because it was not timely filed. Specifically, the petitioner argues that the deadline for submission of surrogate value information in this case was January 24, 2000. See December 14, 1999, Letter to the Respondents. While the petitioner acknowledges that the Department's regulations allow parties to submit surrogate value information twenty days after the preliminary results, the petitioner claims that the intent of this regulation was to allow interested parties an opportunity to supplement their initial surrogate value information. See 19 CFR 351.301(c)(3)(ii). The petitioner asserts that a Departmental policy allowing interested parties to submit surrogate value information for the first time after the preliminary results will result in interested parties ignoring deadlines for submission of such information and therefore shift the burden of finding surrogate values on the Department. The Department's Position We disagree with the petitioner and have accepted the respondents' April 28, 2000, submission. The Department's regulations provide that interested parties have twenty days after publication of the preliminary results during which to submit publicly available information to value factors of production. See 19 CFR 351.301(c)(3)(ii). The preliminary results of this administrative review proceeding were published on April 10, 2000. The respondents submitted their surrogate value information on April 28, 2000. The respondents therefore timely submitted their surrogate value information in accordance with the deadlines set forth in the Department's regulations, and we have accepted this information for purposes of the final results. Issue 2: Capryl Alcohol Valuation Capryl alcohol is a co-product of the sebacic acid production process. For purposes of the preliminary results, the Department valued capryl alcohol using the average value of octanol published in Chemical Weekly for the period April 1998 through May 1999. The petitioner argues that the Department should not value capryl alcohol using the Chemical Weekly value because it represents a basket category that includes both 1-octanol and 2- octanol. Instead, the petitioner asserts that the Department should use a Financial Express import value for 2-ethylhexanol. According to the petitioner, the import value for 2-ethylhexanol more closely resembles the capryl alcohol used in the production of sebacic acid and is equally contemporaneous to the prices in Chemical Weekly. The respondents assert that the Department should continue to value capryl alcohol using the Chemical Weekly price quotes for octanol. The respondents argue that the Department found in the previous segment of this proceeding that the Chemical Weekly octanol price quotes refer to domestic prices for 2-ethylhexanol. See Sebacic Acid from the People's Republic of China: Final Results of Antidumping Administrative Review, 64 FR 69503, 69506 (Dec. 13, 1999) (Sebacic Acid Final Results). Moreover, the respondents assert that the Financial Express import statistics for 2- ethylhexanol are for only one month and, thus, may not represent a true market price for 2-ethylhexanol. According to the respondents, although Indian import statistics have been used in other PRC cases, the Department's preference is to use domestic prices when faced with a choice of surrogate values with no indication that either data set is aberrational or more contemporaneous. See Sulfanilic Acid from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 63 FR 63834, 63837-38 (Nov. 17, 1998). The Department's Position We agree with the respondents and have continued to value capryl alcohol using the Chemical Weekly octanol price quotes for purposes of the final results. The Department's practice has been to value capryl alcohol, also known as 2-octanol, using price quotes for 2-ethylhexanol because this product is comparable merchandise and has similar uses. (1) See Sebacic Acid Final Results, 64 FR at 69506; Sebacic Acid from the People's Republic of China: Final Results of Antidumping Administrative Review, 63 FR 43373, 43375 (Aug. 13, 1998); Sebacic Acid from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, 62 FR 42755, 42758 (Aug. 8, 1997). Moreover, the Court of International Trade (CIT) recently upheld the Department's decisions that 2-ethylhexanol and 2-octanol are comparable merchandise and that the Chemical Weekly octanol value references 2-ethylhexanol. See discussion of the court's decision in Sebacic Acid From the People's Republic of China; Amended Final Results of Antidumping Duty Administrative Review, 65 FR 1849, 1851 (Jan. 12, 2000). Thus, we disagree with the petitioner that: (1) the Chemical Weekly data represent a basket of 1-octanol and 2-octanol values; and (2) the Financial Express values provided by the petitioner are for a product which more closely resembles capryl alcohol. Because the Chemical Weekly price data represent broad price averages for 2-ethylhexanol covering most of the POR, and there is no evidence on the record to suggest that these prices are inappropriate, the Department has continued to value capryl alcohol using the Chemical Weekly values for purposes of the final results. Issue 3: Water Valuation For purposes of the preliminary results, the Department valued factory overhead using Federal Reserve Bank of India (FRBI) data. Because we concluded that water was included in the FRBI overhead data, we did not value it separately. The petitioner disagrees with this conclusion, noting that the FRBI supporting financial statements do not reference water. According to the petitioner, a small amount of the factories' reported water usage may properly be classified as factory overhead; however, when water is classified as a direct material input, as in this case, (2) the Department should value it as a direct material cost. The petitioner notes that the Department has valued water as a direct material cost in numerous other cases. As support for this assertion, the petitioner cites Porcelain-on-Steel Cooking Ware from the People's Republic of China; Preliminary Results of Antidumping Administrative Review, 65 FR 1136, 1138 (Jan. 7, 2000) (Cooking Ware); Certain Helical Spring Lock Washers from the People's Republic of China; Preliminary Results of Antidumping Duty Administrative Review, 64 FR 37743, 37744 (July 13, 1999) (Lock Washers); Freshwater Crawfish Tail Meat from the People's Republic of China; Preliminary Results of New Shipper Review, 64 FR 8543, 8545 (Feb. 22, 1999) (Crawfish); Persulfates from the People's Republic of China: Preliminary Results of Antidumping Duty Administrative Review, and Partial Recision of Administrative Review, 65 FR 18963, 18966 (Apr. 10, 2000) (Persulfates Preliminary Results). According to the petitioner, the Department should follow this established precedent and value water separately here as well. The respondents assert that the Department should not value water as a material input for purposes of the final results. The respondents argue that the Department has determined that water expenses are included in factory overhead costs in all segments of this proceeding, as well as in numerous other cases involving chemical products. See, e.g., Notice of Final Determination of Sales at Less than Fair Value: Sebacic Acid from the People's Republic of China, 59 FR 28053, 28055 (May 31, 1994); Notice of Final Determination of Sales at Less Than Fair Value; Polyvinyl Alcohol From the People's Republic of China, 61 FR 14057, 14063 (Mar. 29, 1996) (PVA); Notice of Final Determination of Sales at Less Than Fair Value: Saccharin from the People's Republic of China, 59 FR 58818 (Nov. 15, 1994) (Saccharin); Final Determination of Sales at Less Than Fair Value: Sulfur Dyes, Including Sulfur Vat Dyes, From the People's Republic of China, 58 FR 7537 (Feb. 8, 1993) (Sulfur Dyes); Final Determination of Sales at Less Than Fair Value: Sulfanilic Acid from the People's Republic of China, 57 FR 29705 (July 6, 1992). According to the respondents, because water is included in factory overhead, valuing it separately as a material cost would result in the Department's double-counting this cost. The Department's Position We have continued to find that water is included in the FRBI factory overhead surrogate value. The Department emphasizes accuracy, fairness, and predictability when assigning surrogate values to factors of production. Notice of Proposed Rulemaking and Request for Public Comments, 61 FR 7308, 7344 (Feb. 27, 1996). See Final Determinations of Sales at Less Than Fair Value: Oscillating Fans and Ceiling Fans From the People's Republic of China, 56 FR 55271, 55275 (Oct. 25, 1991) (cited with approval in Lasko Metal Products, Inc. v. United States, 43 F.3d 1442 (Fed. Cir. 1994)). The Department has stated that for those situations in which it does not know whether the cost of water is included in the surrogate value for factory overhead the Department must determine on a case-by-case basis whether it will value water separately in accordance with section 773(c)(1). Proposed Rules, 61 FR at 7346. We note that in many cases in which the Department has relied on FRBI data to value a company's water expense, including all segments of this proceeding after the less-than- fair-value (LTFV) investigation, the Department determined that the cost of water was included in the factory overhead expense. See, e.g., Sebacic Acid Final Results, 64 FR at 69503; Sebacic Acid from the People's Republic of China: Final Results of Antidumping Duty Administrative Review, 63 FR 43373, 43378 (Aug. 13, 1998); Sulfanilic Acid from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 65 FR 13366 (Mar. 13, 2000) and accompanying Decision Memorandum at Comment 6; Saccharin, 59 FR at 58824. The petitioner did not present new information to support its assertion that the Department should value water separately in this segment of the sebacic acid administrative review. In order to emphasize accuracy, fairness, and predictability in the valuation of water for the administrative review of sebacic acid, we have determined that the cost of water is included in the factory overhead expense. The Department's practice of valuing water as part of factory overhead is outlined in the Department's decision in Saccharin, 59 FR at 58824. Factually similar to the present administrative review of sebacic acid, Saccharin involved factories which used large volumes of water to produce one metric ton of subject merchandise. According to the Concurrence Memorandum prepared for the final determination in that case at page six, the Department asserted that it could not separate the cost of water from the factory overhead expense as the FRBI data did not contain a separate line-item expense for water. Consequently, because normal accounting practice includes the cost of water in factory overhead expense, the Department presumed that the cost of water was included in the FRBI overhead data in order to avoid "double-counting" water costs. In contrast, the Department valued distilled water in that case because it was a specially processed and transported form of water necessary in particular production processes for which standard water would not suffice. Because the respondents in this proceeding have not indicated the use of a special type of water in their sebacic acid production, and in order to further predictability in the valuation of sebacic acid production factors, we have not separately valued water in accordance with our practice. Issue 4: Activated Carbon and Macropore Resin Valuation For purposes of the preliminary results, the Department used an average of a March 1, 1994, VVD & Sons price quote and a December 23, 1996, Brilex Chemicals price quote to value activated carbon and macropore resin. (3) The petitioner argues that the Department should value activated carbon and macropore resin using the 1996 Brilex Chemicals price quote because: (1) the two prices are from equally similar data sources; and (2) the Brilex Chemicals value is more contemporaneous with the POR than the VVD & Sons price quote. The petitioner states that older surrogate values are more likely to be distorted than recent prices due to new technological processes or different cost structures resulting from inflation. The respondents argue that the Department should value activated carbon and macropore resin using neither of the price quotes used in the preliminary results. Instead, the respondents argue that the Department should use the Chemical Weekly export prices provided by the respondents in their April 28, 2000, submission. The respondents argue that the price quotes on which the Department based the activated carbon and macropore resin values in the preliminary results were unreliable in that they fell outside the POR. According to the respondents, the Department should not presume that the market price for these factors simply tracks the rate of inflation. According to the respondents, the Department correctly rejected the import statistics submitted by the petitioner for purposes of the preliminary results. The respondents assert that the Department has historically preferred export prices to import prices in valuing factors of production because export prices better reflect the value of those products manufactured in a surrogate country. In contrast, the respondents state that import prices are less reliable because they represent the value of goods that are manufactured abroad. Moreover, the respondents assert that the Department has a clear preference in using export prices to value activated carbon given that it valued activated carbon in the previous segment of this proceeding using export prices. See Sebacic Acid Final Results, 64 FR at 69506. The Department's Position We agree with the petitioners that activated carbon and macropore resin should be valued using the 1996 Brilex Chemicals price quote. In valuing the factors of production in a nonmarket economy case, the Department must use the best available information. See section 773(c)(1) of the Act. The Department's selection of surrogate values is made on a case-by-case determination of what data represent the best available information. Although the Department generally prefers data which is more contemporaneous with the POR, contemporaneity is not the only criterion taken into consideration. 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 1 (Bulk Aspirin). Thus, although the most contemporaneous data on the record for this review segment of sebacic acid is the June 1, 1999, Chemical Weekly export price submitted by the respondents in their April 28, 2000, submission, we have not valued activated carbon using this price for the reasons stated below. In the 1997-1998 administrative review of sebacic acid, the Department had to choose among Chemical Weekly import and export prices and the Indian producer price quotes as values for activated carbon and macropore resin. For purposes of the 1997-1998 administrative review's final results, the Department averaged the Indian producer price quotes to value activated carbon. See Sebacic Acid Final Results, 64 FR at 69506. The Department based its decision to use the Indian producer price quotes on the facts that the prices reflected the specific "powder" type of activated carbon used by the respondents and were supported by publicly available published information, the Chemical Weekly export prices, while neither of these values was comparable to the import values. Id. We have reconsidered the valuation of activated carbon and find that the best available information with which to value activated carbon is the most contemporaneous Indian producer price quote which reflects the particular type of activated carbon used by the respondents. Specifically, we chose this single Indian producer price quote over the other Indian producer price quote and the Chemical Weekly values because it is more contemporaneous than the former and more product-specific than the latter. Issue 5: Caustic Soda Valuation For purposes of the preliminary results, the Department valued caustic soda using data from the July 1998 through June 1999 issues of Chemical Weekly. Although the petitioner does not disagree with the selection of these surrogate values, it agues that the Department's calculations were inaccurate because the Department assumed that the surrogate values were for a product with a concentration level of one hundred percent. However, the petitioner asserts that the Chemical Weekly value for caustic soda references caustic soda lye which is typically sold in liquid form at fifty percent concentration levels. In support of this contention, the petitioner notes that it has placed on the record of this review several website pages which show that the industry standard for liquid caustic soda is that it is sold in a fifty percent concentration, as well as articles from Indian publications that discuss the differences between the lye variety of caustic soda and other forms such as flakes or prills. Thus, the petitioner argues that the Department should adjust the surrogate value for caustic soda lye by assuming a fifty percent concentration level. The respondents maintain that the Department should continue to value caustic soda based on a one hundred percent purity level standard. According to the respondents, the Department valued caustic soda at this purity level in the final determination of the sebacic acid LTFV investigation, as well as in the last administrative review, based on statements from Chemical Weekly's editor that chemical prices reflect one hundred percent purity levels when the purity percentage is unspecified. The Department's Position We have continued to value caustic soda with domestic Chemical Weekly prices which reflect concentration levels of one hundred percent. The Department has on the record for this administrative review a letter from the editor of Chemical Weekly which specifically references caustic soda. See memorandum to the file from Christopher Priddy dated July 21, 2000. This letter states that chemical price quotes with non-referenced purity levels are based on one hundred percent purity levels. The Department has also determined in other segments of this proceeding that Chemical Weekly caustic soda (lye) prices are based on purity levels of one hundred percent. See Sebacic Acid Final Results, 64 FR at 69504-05. Although the petitioner has submitted information which demonstrates that several companies sell liquid caustic soda of a fifty percent purity, the question before the Department is the purity level on which the specific surrogate prices for liquid caustic soda are based. The Department has determined that Chemical Weekly caustic soda (lye) prices are the appropriate surrogate values for liquid caustic soda, and the Department has written documentation from the source of these values indicating that the prices are based on one hundred percent purity levels. Consequently, for purposes of the final results, we have continued to accept the Chemical Weekly caustic soda (lye) prices as quoted on a one hundred percent purity basis. Issue 6: Capryl Alcohol and Glycerine Purity Level Adjustments For purposes of the preliminary results, the Department adjusted the surrogate value of capryl alcohol produced by Handan to reflect a concentration level of 85.5 percent. The Department did not make a concentration level adjustment to the surrogate value of glycerine produced by both Handan and Hengshui. The petitioner alleges that the Department did not appropriately adjust the factors of production to account for the purity levels of capryl alcohol and glycerine produced by Handan and Hengshui. Specifically, the petitioner notes that the Department incorrectly allocated Handan's factors of production between co- products using a purity level of 85.5 percent for capryl alcohol, while Handan reported a purity level of 82 percent in its February 28, 2000, submission. The petitioner states that this error understated certain factors of production reported by Handan and, thus, the calculated normal value for Handan. In addition, the petitioner argues that the Department did not adjust the glycerine costs for levels of purity for both Handan and Hengshui, which understates the calculated normal value in the margin calculation programs. Specifically, the petitioner argues that, because the Department valued glycerine produced by Handan and Hengshui using a surrogate value for refined glycerine and both producers reported that they refine glycerine to a 95 percent purity level, the Department must revise its calculations in order to adjust the surrogate value for glycerine. The respondents argue that the Department need not make any adjustments to the margin calculation programs with respect to glycerine. The respondents assert that, because they reported production of refined glycerine as a by-product, and the Department valued this glycerine using a surrogate value for refined glycerine, no adjustments are necessary. The respondents did not comment on the Department's valuation of capryl alcohol. The Department's Position According to the questionnaire responses, Handan and Hengshui produce capryl alcohol and glycerine at various purity levels. (4) Consequently, we have amended our calculations to reflect surrogate values stated on the same purity-level basis. Regarding the respondents' arguments with respect to glycerine, we agree that both the factor of production and the surrogate value are for refined glycerine. However, we obtained the surrogate value in question from Chemical Weekly. According to the editor of this publication, the chemical prices provided in Chemical Weekly are for products with one hundred percent purity levels unless specified otherwise. See Memorandum to the File from Christopher Priddy dated July 21, 2000. Consequently, we have adjusted the surrogate value for refined glycerine for purposes of the final results. Issue 7: Hengshui's Castor Seed Freight Valuation and Electricity Valuation The petitioner alleges that the Department made certain ministerial errors in its preliminary margin calculations with respect to the surrogate values used for freight and electricity. Specifically, the petitioner asserts that the Department erred by averaging the costs of truck and rail freight expenses for castor seeds used by Hengshui. In addition, the petitioner asserts that the Department used an incorrect figure to inflate the electricity value for one month. According to the petitioner, the Department should correct these errors for purposes of the final results. The respondents did not comment on this issue. The Department's Position We agree that our freight calculation contained the error noted above. Consequently, we have revised this calculation for purposes of the final results. Regarding electricity, we also agree that we used an incorrect inflator for one month. However, we have not corrected this error because we have valued electricity using a revised methodology. Specifically, for purposes of the final results, we derived a surrogate value for electricity based on the electricity price data published by the Center for Monitoring Indian Economy and the Conference of Indian Industries. We then inflated the quoted rates to the POR using an electricity-specific price index published by the Reserve Board of India. These data were recently used in the antidumping administrative reviews of manganese metal from the PRC and persulfates from the PRC. See Manganese Metal from the People's Republic of China; Final Results of Antidumping Duty Administrative Review, 65 FR 30067, 30067-68 (May 10, 2000); Persulfates from the People's Republic of China: Final Results of Antidumping Duty Administrative Review and Partial Rescission of Administrative Review, 65 FR 46691, 46692 (July 31, 2000). Issue 8: International Freight Valuation For purposes of the preliminary results, the Department valued the respondents' international freight expenses during the POR using an average of May 1, 1997, and May 1, 1998, ocean freight quotes for oxalic acid provided by Maersk, Inc. (Maersk). The respondents argue that the Department should value their POR ocean freight expenses using the prices which they were charged by market- economy carriers during the POR. The respondents assert that the Department has a long-standing practice of valuing inputs using actual prices rather than surrogate values if the inputs were purchased from a market-economy supplier in a market-economy currency. According to the respondents, this practice is consistent with the CIT's decision in Olympia Industrial, Inc. v. United States, 7 F. Supp. 2d 997 (CIT 1998) (Olympia). According to the respondents, the question before the court in Olympia was whether the Department could reasonably resort to surrogate values when the Department had the market economy prices paid by PRC trading companies to suppliers in market economy countries. Id. at 999. The respondents note that the CIT held that "[t]he cost of raw material from a market economy supplier, paid in convertible currencies, provides Commerce with the closest approximation of the cost of producing the goods in a market economy." Id. The CIT also held that this same standard applied to trading company data. Id. at 1002 (citing Lasko Metal Prods., Inc. v. United States, 810 F. Supp. 314, 317 (CIT 1992), aff'd, 43 F.3d 1442 (Fed. Cir. 1994). The respondents acknowledge that the Department did not value international ocean freight with actual market-economy expenses in two recent cases. Specifically, the respondents note that in the recent LTFV investigation of synthetic indigo from the PRC, the Department did not value ocean freight with the expenses incurred by the respondents because the Department found that the ocean freight services were paid in PRC currency. See 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 7. Moreover, the respondents state that, in the recent LTFV investigation of apple juice from the PRC, the Department stated that it did not value ocean freight with actual prices paid by the respondents to market economy carriers because the respondents failed to document payment to the market-economy suppliers in a market-economy currency. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Non-Frozen Apple Juice Concentrate from the People's Republic of China, 65 FR 19873 (Apr. 13, 2000) and accompanying Decision Memorandum at Comment 3 (Apr. 6, 2000) (Apple Juice). The respondents note that the Department's decision to value ocean freight with a surrogate in Apple Juice was based on the fact that the record in that case contained no documentation, such as an invoice, of freight charges between the market economy shipper and the respondents or their freight forwarder. The respondents maintain that the Department should use their actual ocean freight costs rather than a surrogate value in this administrative review. Both respondents distinguish their particular situations from the aforementioned cases by asserting that they reported actual ocean freight expenses for shipments of sebacic acid by market economy carriers and paid for these expenses in a market economy currency. Specifically, Guangdong Chemicals Import & Export Corp. (Guangdong) states that, although its freight forwarder was paid in the PRC currency (i.e., RMB), this forwarder made shipping arrangements with a market-economy carrier which was paid in U.S. dollars. Guangdong asserts that the information on the record for this administrative review clearly indicates the amount which Guangdong paid its PRC freight forwarder in both RMB and U.S. dollars. Guangdong notes that this freight forwarder, in turn, paid net freight expenses in U.S. dollars to the market economy carriers' agent for sebacic acid to the United States. Sinochem Tianjin Import & Export Corp. (Tianjin) acknowledges that its invoices do not itemize payments to market economy carriers. Nonetheless, Tianjin requests that the Department consider using a weighted-average ocean freight rate based on the actual expenses incurred by Guangdong. Tianjin cites the Department's decision in the investigation of bicycles from the PRC to support its assertion that the Department's practice is to use one respondent's market-economy data to value the input of another respondent in the same administrative proceeding. See Notice of Final Determination of Sales at Less Than Fair Value: Bicycles From the People's Republic of China, 61 FR 19026, 19029 (Apr. 30, 1996). According to the respondents, if the Department decides not to use the respondents' actual ocean freight costs, it should not value international freight as it did in the preliminary results. The respondents assert that there are several reasons why the Maersk international freight quotes for oxalic acid are not appropriate to value shipments of sebacic acid. First, the respondents argue that the Department cannot fairly compare shipping prices for oxalic acid and sebacic acid because oxalic acid is a toxic, hazardous material, and sebacic acid is not. Therefore, the respondents assert that oxalic acid requires special shipping measures which are unnecessary for sebacic acid. Second, the respondents argue that the Department should not use a Maersk ocean freight quote as Maersk is a "premium" shipping company whose rates do not properly reflect the respondents' own ocean freight expenses. Rather, the respondents argue that the Department should value ocean freight using FMC rates for either oxalic acid, because these are: (1) more comparable to the international freight costs incurred by the respondents; and (2) derived from a number of competitive ocean freight shipping companies traveling the same routes. According to the respondents, the Department has an established practice of using FMC data to determine the surrogate value for ocean freight in other proceedings. See, e.g., Apple Juice, 65 FR at 19874. The petitioner argues that the Department correctly rejected the respondents' ocean freight expenses because the respondents were unable to establish a link between the prices charged by the market economy carriers and the prices actually paid by the respondents. The petitioner asserts that the Department should continue to value ocean freight using the Maersk rate for oxalic acid as this merchandise is comparable to sebacic acid and the Department has used Maersk rates to value ocean freight in several other cases. For example, the petitioner notes that the Department opted for Maersk international freight rates over FMC rates in an administrative review of tapered rolling bearings. See Tapered Rolling Bearings and Parts Thereof, Finished and Unfinished, from the PRC; Final Results of 1996-1997 Antidumping Duty Administrative Review and New Shipper Review and Determination Not to Revoke Order in Part, 63 FR 63842, 63855 (Nov. 17, 1998) (Tapered Rolling Bearings)). In Tapered Rolling Bearings the Department based its decision to use Maersk ocean freight rates on three factors: (1) the fact that the Maersk rates reflected actual ocean freight costs which the PRC tapered rolling bearer producers would face; (2) the fact that the Maersk rates were contemporaneous with the POR; and (3) the fact that the Maersk rates included all surcharges applicable to shipment of tapered rolling bearings. See Tapered Rolling Bearings, 63 FR at 63855. The Department's Position In accordance with 19 CFR 351.408(c)(1), in non-market economy cases the Department values inputs which a respondent purchased from a market economy supplier in a market economy currency with the actual price paid by the respondent. However, we are unable to do so in this case because we find that the respondents did not establish a link between the prices charged by the market economy carriers and the prices paid by the respondents for international freight of sebacic acid. Guangdong reported that it paid ocean freight charges to its freight forwarder in Tianjin who in turn paid the market-economy carrier's appointed agent in the PRC. See Guangdong's March 24, 2000, supplemental questionnaire response. Guangdong supported its assertion regarding ocean freight payments by providing documentation tracing ocean freight payment from Guangdong to the market economy carrier's PRC agent. However, Guangdong did not provide any documentation of the transactions between this PRC agent and the market economy carrier (e.g., invoices from the carrier reflecting expenses in a market economy currency). Factually analogous to Apple Juice, in this case we cannot determine the market economy nature of the ocean freight transaction because we do not have documentation linking the amounts which either respondent claimed to have paid to the amount charged by the market economy carriers. In Apple Juice, we stated: While we do not dispute the respondents' claims that the ocean freight was both paid for in a market economy currency and provided by a market economy currency and provided by a market economy shipping company, in the absence of documentation on the record of the amount actually charged by the market economy shipper (i.e., an invoice between the market economy supplier and either the PRC freight forwarder or the respondents), the record contains only the values associated with transactions between two PRC entities. Apple Juice at Comment 3. Thus, absent documentation of the price actually paid to the market economy carriers for international freight (either by the respondent or the freight forwarder), the record reflects payment documentation only between PRC entities; we cannot, therefore, deem the ocean freight transaction as market economy and have valued ocean freight with a surrogate. When selecting the surrogate values for the final results, we looked for values which would satisfy the Department's criteria as outlined in Tapered Rolling Bearings. Specifically, we looked for values which (1) represent costs which market economy international shipping companies would have charged the PRC exporters for shipments of sebacic acid, (2) are contemporaneous to the POR, and (3) include surcharges applicable to sebacic acid shipments. Based on these criteria, we obtained FMC per- container international ocean freight rates for sebacic acid which were effective during the period of review. (5) See Memorandum to the File from Christopher Priddy dated July 21, 2000. We find that the use of these rates is more appropriate than using the FMC ocean freight rates submitted by the respondents because these rates specifically reference sebacic acid and explicitly identify all applicable shipping expenses. Similarly, we find that the use of these rates is more appropriate than using the Maersk rates because the Maersk rates are for the shipment of oxalic acid prior to the POR. Issue 9: Brokerage and Handling Valuation The respondents claim that the surrogate value for brokerage and handling charges chosen by the Department in this administrative review (i.e., public information reported in the 1997 - 1998 new shipper review of stainless steel wire rod (SSWR) from India) is aberrational. The respondents argue that this surrogate value represents brokerage and handling charges pertaining to a shipment of merchandise that is much smaller than the actual quantity of sebacic acid shipped by the respondents. According to the respondents, because many brokerage expenses are charged on a fixed fee, rather than a per-quantity basis, the per-unit brokerage and handling expenses would necessarily decrease as the quantity shipped increases. As proof that the value used was aberrational, the respondents note that the value is more than three times higher than the highest value found in the Department's online database of surrogate values at . The respondents conclude that the Department should instead use public information from the online database, as was done in a recent review of sulfanilic acid from the PRC. See Sulfanilic Acid From the People's Republic of China; Preliminary Results of Antidumping Duty Administrative Review, 64 FR 48788, 48792 (Sept. 8, 1999) (Sulfanilic Acid). The petitioner argues that the Department cannot conclude that the surrogate value used in the preliminary results is aberrational simply by comparing it to the values contained in the Department's online database. According to the petitioner, the data in the Department's database are more than six years old. The petitioner contends that the actual price for such services will have changed substantially enough over this time period such that it is no longer accurate to use it when a more contemporaneous source exists. Moreover, the petitioner maintains that this point is particularly valid given the Department's preference for contemporaneous data. See Notice of Final Determination of Sales at Less Than Fair Value: Certain Preserved Mushroom from the People's Republic of China, 63 FR 72255, 72266 (Dec. 31, 1998); Manganese Metal from the People's Republic of China; Final Results of Second Antidumping Administrative Review, 64 FR 49447, 49455 (Sept. 13, 1999); Tapered Rolling Bearings 63 FR at 63846. The petitioner contends that, absent information concerning the volume of the merchandise shipped in this database, no comparison can be made between the values reflected in the database and the surrogate value chosen by the Department. Thus, the petitioner asserts that the Department should continue to value brokerage and handling expenses using the value selected for the preliminary results. The Department's Position We have continued to value brokerage and handling using the public information from the new shipper review of SSWR from India. We do not find this price to be aberrational. Specifically, we note that the respondents provided no evidence demonstrating that this cost was set on a fixed-fee basis but merely asserted that it was so. Moreover, respondents based their argument on a comparison of data which was three and six years old. We find that this comparison is not valid because: 1) the respondents did not account for the effects of inflation and thus compared prices which were stated on a different basis; and 2) the respondents did not demonstrate that either the basis on which the SSWR brokerage was set, or the quantity of the SSWR shipment in question, differed from the basis for, or quantity of, the brokerage expenses for sebacic acid. Thus, we find that there is insufficient evidence on the record of this proceeding to conclude that the brokerage expense used in the preliminary results is aberrational. It is the Department's practice to use data that are the most contemporaneous with the POR when selecting from two or more equally valid surrogate values. As noted above, the time period of the online surrogate values for brokerage and handling expenses dates back more than six years. By contrast, the data that we used in the preliminary results of this proceeding are only one to two years before the POR. It is therefore reasonable to conclude that a 1997 Indian price for such services is a better surrogate for brokerage and handling fees charged during the POR than are the 1993/1994 prices. Finally, we note that we have relied on this surrogate value in a number of recent cases involving the PRC. See Bulk Aspirin, 65 FR at 33806 (confirming the decision made in Notice of Preliminary Determination of Sales at Less Than Fair Value: Bulk Aspirin From the People's Republic of China, 65 FR 116, 119 (Jan. 3, 2000)); Persulfates, 65 FR at 46692 (confirming the decision made in Persulfates Preliminary Results, 65 FR at 18967); Freshwater Crawfish Tail Meat From the People's Republic of China: Preliminary Results of New Shipper Review, 65 FR 13939, 13941 (Mar. 15, 2000). Issue 10: Castor Oil and Castor Seed Valuation In the preliminary results we valued castor oil using actual market economy prices paid by the factories during the POR, while for castor seed, we used values published in the 1998 issues of Solvent Extractors Association of India (Solvent Extractors). The respondents assert that the Department should continue to value all castor oil inputs with actual prices paid to market economy suppliers. The respondents note that the Department's factors valuation memorandum for the preliminary results incorrectly states that the Department relied upon Solvent Extractors data to value castor oil. In the event that the Department uses publicly available information to value castor oil for purposes of the final results, the respondents assert that the Department should base its castor oil surrogate value on Economic Times data. The respondents also state that the Department should base its surrogate value for castor seed on Economic Times data rather than data taken from the Solvent Extractors. According to the respondents, the Solvent Extractors data represent only the first quarter of the POR and thus do not adequately represent the POR. The respondents also assert that the data do not contain a sufficient number of prices from which to derive a representative average price. Moreover, the respondents argue that the data are imprecise because they represent only high and low values for a three-month period. In contrast, the respondents argue that the Economic Times data are more representative of the POR and that the data present a larger and more precise sampling of actual prices for castor oil and castor seed over a larger and more appropriate time period. The petitioner asserts that the Department correctly valued castor oil and castor seed using Solvent Extractors data in the preliminary results. The petitioner maintains that the contemporaneous Solvent Extractors data conservatively estimate castor oil and castor seed prices during the POR as prices typically increase over time. Moreover, the petitioner asserts that these data represent prices from a broader range of Indian producers and cities than the Economic Times data. The petitioner contends that the averaging of Solvent Extractors prices cures any defect which may arise from the fluctuation in the prices, and the petitioner argues that the Economic Times data imperfectly represent the POR because data for certain months have been omitted. Although the petitioner states that the Department should not value castor oil and castor seed with Economic Times data, the petitioner nonetheless asserts that the Department should value castor seed oilcake, a by-product of the sebacic acid production process, using the Economic Times. Because there is no Solvent Extractors data for castor seed oilcake, the petitioner asserts that the Economic Times is an acceptable source for this surrogate value. The petitioner notes that the Economic Times data are contemporaneous with the POR and adequately reflect Indian castor seed oilcake prices. The Department's Position We have continued to value castor oil with the actual prices which the Hengshui and Handan factories paid for castor oil from India. In those cases in which inputs are purchased by a market-economy supplier in a market-economy currency, the Department values these inputs using the actual prices paid to the market-economy supplier, in accordance with 19 CFR 351.408(c)(1). In addition, in those cases in which a respondent purchases a portion of the inputs used in the production process from a market-economy supplier and the remainder from nonmarket economy suppliers, the Department values all of the input with the price paid to the market economy supplier. Id. Because Hengshui and Handan purchased castor oil from both Indian and nonmarket economy suppliers during the POR, we have followed the Department's regulations and valued all of the producers' castor oil inputs with the prices paid to Indian suppliers. We valued castor seed and castor seed oilcake using Economic Times data which is contemporaneous to the POR. Although we disagree with the respondents that the Solvent Extractors data are imprecise due to the fact that they represent monthly high and low values, we have not used these data because they are less complete than the Economic Times data. (6) Specifically, the Solvent Extractors data represent only three months of the POR, while the Economic Times data represent ten of the twelve months in the POR. Further, as the petitioner acknowledges, the Economic Times is an acceptable source for data used in the Department's valuation of the factors of production. Issue 11: Phenol Valuation For purposes of the preliminary results, we valued phenol using Chemical Weekly Indian domestic prices which were contemporaneous with the POR. The respondents assert that the Department should not value phenol using these prices because they are unreliable as indicated by recent safeguard measures enacted by the Indian government to protect the phenol industry. The respondents argue that the Department should follow its practice established in Bulk Aspirin and value phenol using an average of Indian import and domestic phenol values which best reflect the purchase price of Indian phenol. See Bulk Aspirin at Comment 1. The respondents assert that the Indian government's August 12, 1999, invocation of the World Trade Organization Safeguards Clause for all imports of phenol indicates that India's phenol industry cannot compete with imported phenol sold at Indian market prices. The respondents assert that the Indian government can impose high tariffs under the safeguards action to provide an economic recovery period to its domestic phenol industry. These high duties, according to the respondents, cause an artificial rise in Indian market prices for phenol and distort the phenol market price. The respondents argue that Indian import rather than domestic phenol prices are indicative of the actual Indian market value of phenol. In support of their argument against using Indian domestic phenol values, the respondents cite a Court of Appeals for the Federal Circuit (CAFC) decision which states that the Department should not adopt Indian domestic prices which have been distorted by Indian tariffs. See Nation Ford Chem. Co. v. United States, 166 F.3d 1373, 1377-78 (Fed. Cir. 1999) (Nation Ford). The respondents note that, in Nation Ford, the CAFC held that the Department should not incorporate a distortion in the Indian market caused by Indian tariffs into the factors of production methodology based solely on the fact that India was the surrogate country. The respondents argue that the situation in the present case regarding phenol is analogous to Nation Ford because Indian domestic phenol prices do not accurately reflect true Indian market prices due to high tariffs on phenol. The petitioner argues that the Department should continue to value phenol using the Chemical Weekly domestic price quotes. According to the petitioner, the Department has found Chemical Weekly to be a reliable source for surrogate values in that the Chemical Weekly prices accurately reflect the prices which Indian manufacturers pay for various factors of production. The Department's Position We agree with the respondents that Indian domestic phenol prices are unreliable and have valued phenol using import prices which more accurately represent the Indian market value of phenol. The Department recently found that India has imposed a 59.57 percent protective tariff on imported phenol which may be waived through India's duty drawback system. See Bulk Aspirin at Comment 1. See also Easy Reference Customs Tariff 1998- 1999, Academy of Business Studies. The Department also determined that the Indian domestic value of phenol as reported in Chemical Weekly has been distorted by India's tariff system. See Bulk Aspirin at Comment 1. In support of its determination in Bulk Aspirin regarding the unreliability of Indian domestic phenol prices, the Department stated that the weight- averaged Chemical Weekly import price of phenol adjusted by the tariff percentage almost equaled the weight-averaged Chemical Weekly domestic phenol price. In accordance with the Department's decision in Bulk Aspirin, we determine that Indian import prices for phenol are not aberrational. Consequently, we have valued phenol with Chemical Weekly import prices used by the Department in Bulk Aspirin as these prices for phenol are contemporaneous with the POR in this case. 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 results of review and the final weighted-average dumping margins for all reviewed firms in the Federal Register. Agree ______ Disagree ______ ______________________ Troy H. Cribb Acting Assistant Secretary for Import Administration ______________________ (Date) __________________________________________________________________ footnotes: 1. During the last administrative review, the Department received a letter from the editor of Chemical Weekly which states that the Chemical Weekly price quote for octanol is for 2-ethylhexanol. See Sebacic Acid Final Results, 64 FR at 69505. 2. Both Handan and Hengshui reported water as a material input in the sebacic acid production process. 3. As noted in the preliminary results, the Department determined that the factors activated carbon and macropore resin are interchangeable and has valued macropore resin using the surrogate value for activated carbon. See Sebacic Acid Preliminary Results, 65 FR at 18971. 4. Handan reported that it produced capryl alcohol of 82 percent purity and 95 percent pure refined glycerine. Hengshui reported that it refined capryl alcohol to a purity level between 83 and 86 percent and purified glycerine to 95 percent. 5. We valued ocean freight using a per-container rate as the respondents reported that their non-market economy carriers charged for sebacic acid shipments on a per-container basis. 6. A comparison of average castor seed values from the Economic Times and the Solvent Extractors for the months of July, August, and September 1998 demonstrates that the greatest variance in price for any of the three months is seven percent of the Economic Times price.