67 FR 10665, March 8, 2002 A-570-601 New Shipper Reviews PUBLIC DOCUMENT DAS I/1: JG, AG MEMORANDUM TO: Faryar Shirzad Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary Import Administration, Group I SUBJECT: Issues and Decision Memo for the New Shipper Reviews of Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, from the People's Republic of China; Final Results _________________________________________________________________________ SUMMARY We have analyzed the briefs and rebuttal briefs of interested parties in the new shipper reviews of the antidumping duty order covering tapered roller bearings and parts thereof, finished and unfinished, from the People's Republic of China. As a result of our analysis, we have made changes, including corrections of certain inadvertent programming and clerical errors, in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is a complete list of the issues in these new shipper reviews for which we received comments and rebuttal comments from parties: Comment 1: Market Economy Steel Values Comment 2: Rescission of Yantai Timken's New Shipper Review Comment 3: Surrogate Value for Pallets and Other Factors Comment 4: Adding Ocean Freight and Marine Insurance to the Japanese Exports to India Data Comment 5: CPZ's Indirect Selling Expenses Comment 6: CPZ's Post-Sale Warehousing Expenses Comment 7: Price of CPZ's Sample Sale Comment 8: CPZ's Credit Expense Comment 9: CPZ's Inventory Carrying Cost BACKGROUND On November 29, 2001, the Department of Commerce ("the Department") published the preliminary results of these new shipper reviews of tapered roller bearings and parts thereof, finished and unfinished ("TRBs") from the People's Republic of China ("PRC"). See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China: Preliminary Results of New Shipper Reviews, 66 FR 59569 (November 29, 2001) ("Preliminary Results"). These new shipper reviews cover Yantai Timken Company Limited ("Yantai Timken") and Peer Bearing Company - Changshan ("CPZ"). The period of review ("POR") for Yantai Timken is June 1, 2000 through November 30, 2000 and for CPZ the POR is June 1, 2000 through January 31, 2001 (collectively, "PORs"). See Preliminary Results, 66 FR at 59569. We invited parties to comment on the Preliminary Results. At the request of The Timken Company ("Timken" or "the petitioner") and Yantai Timken, we held a public hearing on January 31, 2002. DISCUSSION OF ISSUES Comment 1: Market Economy Steel Values CPZ reported that it produced subject TRBs using steel imported from a market-economy steel supplier and that it paid for this steel with a market-economy currency. In the Preliminary Results, consistent with prior TRBs reviews, the Department found that there was reason to "believe or suspect" the steel imported by CPZ was subsidized. Consequently, the Department valued this input using surrogate data, i.e., Japanese export values to India. Respondent's Argument: CPZ objects to the Department's preliminary finding and claims that it has demonstrated that there is no reason to believe or suspect that this market economy steel supplier received any subsidies. In addition to the information submitted prior to the Preliminary Results, CPZ notes that, in a January 10, 2002, submission, CPZ provided additional factual information to the Department to establish that the imported steel was not subsidized, including a declaration from its market-economy steel supplier. This declaration addressed the issues raised in the cases cited by the Department to support its preliminary finding, including the principal program that accounted for the vast preponderance of the countervailable benefits. Furthermore, the supplier stated that no U.S. countervailing duty order applies to it. Thus, CPZ claims that there is record evidence to overcome the Department's reasons to "believe or suspect" that CPZ's market-economy steel supplier benefitted from countervailable subsidies. Moreover, even if its market- economy steel supplier did receive a subsidy in amounts comparable to those the Department found for other companies in the supplier's country, CPZ suggests that the Department view such benefits as "upstream subsidies" and consider the "significant effect" of any net benefit to the subject merchandise. (1) Regardless, because there is no evidence that CPZ's market-economy supplier received any subsidy, CPZ concludes that the Department should use the actual prices CPZ paid for the market-economy steel that it used to produce the subject merchandise. Furthermore, based on the record, CPZ contends that, in disregarding CPZ's actual prices, the Department has asserted authority based on a flawed interpretation of the legislative history. (2) In particular, CPZ claims that, if the Department intends to apply a subsidy standard defined by CVD law, then the Department should similarly require that the alleged subsidy be injurious. Petitioner's Argument: The petitioner argues that the Department correctly rejected CPZ's reported market-economy steel values. First, the petitioner asserts that CPZ has failed to demonstrate that the Department's Preliminary Results on this issue were factually incorrect, and, that CPZ's contentions ignore the Department's findings in the two immediately preceding administrative reviews. Thus, based on the facts on the record of this review, the petitioner concludes that there continues to be a reason to believe or suspect that the steel from CPZ's market- economy supplier benefitted from subsidization, thereby justifying the exclusion of the claimed market economy prices. Second, 19 CFR 351.408(c)(1) provides that the Department will "normally" use public information to calculate NME values, and that using actual market economy rules is an exception to the rule that the Department need not employ in this case. Finally, the petitioner argues that the Department's decision in the Preliminary Results is consistent with the legislative history (3) and, therefore, the Department did not exceed its authority. The petitioner contends that the legislative history evinces a concern that the Department should not determine surrogate values based on unfair input prices from market-economy sources, but says nothing about injury in this regard. Thus, if there is a reason to believe or suspect that a non-market economy respondent obtained inputs at unfair prices, then the Department should disregard these prices in accordance with Congress' intent. Moreover, the Department can assume that the legislative history is limited to countervailable subsidies, rather than non-countervailable subsidies, but the specific subsidies in question have already been deemed countervailable and made subject to countervailing duty orders. Thus, the petitioners conclude that the Department should reject CPZ's arguments. Department's Position: We have continued to reject the actual prices paid CPZ for this input in these final results. For the reasons explained in prior reviews of this order, we believe that the Department cannot use import prices when it has reason to believe or suspect that those prices are dumped or subsidized. See Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of 1999-2000 Administrative Review, Partial Rescission of Review, and Determination Not to Revoke Order in Part, 66 FR 57420 (November 15, 2001) ("TRBs XIII"); Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Final Results of 1998- 1999 Administrative Review, Partial Rescission of Review, and Notice of Intent to Revoke Order in Part, 66 FR 1953 (January 10, 2001) and Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China; Amended Final Results of 1998-1999 Administrative Review and Determination to Revoke Order in Part, 66 FR 11562 (February 26, 2001) (collectively, "TRBs XII"). CPZ has made two submissions purporting to demonstrate that the input in question is not subsidized. The first submission was also made in TRBs XIII and we found that it did not refute the Department's reason to believe or suspect standard. We continue to rely upon the analysis in that determination. In CPZ's second submission, the market economy supplier of CPZ stated that it had not benefitted from the program that accounted for the vast preponderance of the countervailable benefits. Assuming, arguendo, that we would accept this statement as evidence that the market economy supplier did not receive this particular subsidy, this does not address all of the subsidization of the input in question. We note that the Department has taken the position that the level of subsidization is not relevant. So long as any general export subsidy has been found, it may benefit exports from that country. See, "Issues and Decision Memorandum for the Final Results of Antidumping Investigation of Automotive Replacement Glass ("ARG") Windshield from the People's Republic of China" (February 12, 2002), Comment 1. Although the other export subsidies which potentially benefit this input were small relative to the major program, those other programs were addressed in the first submission and that submission was not sufficient to overcome the evidence of subsidization. Thus, the record in this proceeding does not support the conclusion that CPZ's inputs were unsubsidized. We further disagree with CPZ that the Department's analysis is flawed because we have not determined that the subsidies in question are injurious. The legislative history we relied upon states that Commerce "should avoid using any prices which it has reason to believe or suspect may be dumped or subsidized prices." (See H.R. Rep. 100-576 at 590-591 (1988).) This language clearly does not require that the subsidized prices be injurious. Nor does the fact that Commerce considers in its analysis subsidies which it had found countervailable imply that the subsidies must be injurious. Comment 2: Rescission of Yantai Timken's New Shipper Review Respondent's Argument: CPZ contends that the Department should discontinue the new shipper review of Yantai Timken, in accordance with 19 CFR 351.214(f), and instead initiate a "changed circumstances" review. Specifically, CPZ notes that Yantai Timken and Timken are affiliated parties, which means that Timken, in addition to being the petitioner, is also a PRC exporter and a U.S. importer of TRBs. In light of this relationship, CPZ alleges that Timken will not seek to avoid dumping by Yantai Timken because it will not be injured by any such imports by virtue of the Continued Dumping and Subsidy Offset Act of 2000 ("CDSOA"), which provides petitioners with the dumping duties collected by Customs. Thus, even if Yantai Timken sells below normal value, Timken will receive the dumping duties that are assessed against Timken's own imports from Yantai Timken. Accordingly, CPZ concludes that Timken can no longer rely upon the dumping law as a remedy. Furthermore, CPZ argues that, because Timken is eligible for distribution under CDSOA, any distributions received by Timken constitute constructive reimbursement to Timken for duties paid. See 19 CFR 351.402 (providing that the Department will deduct from the export price or the constructed export price the amount of any antidumping duty paid directly on behalf of the importer or reimbursed to the importer). Thus, Yantai Timken would be free to sell subject merchandise in the United States at prices below normal value, yet it would avoid being subject to the antidumping laws by reason of CDSOA payments to Timken. Consequently, according to CPZ, the Department should continue to collect reimbursed duties or rescind the new shipper review of Yantai Timken under 19 CFR 351.214(j). See also Melamine Chemicals, Inc. v. United States, 732 F.2d 924, 930 (1984) (providing that the Department may develop methodologies to deal with situations not expressly addressed by the statute). Finally, CPZ contends that, in light of Timken's eligibility for a distribution under CDSOA, it must be presumed that any dumping duties paid on imports of Yantai Timken products will be constructively reimbursed, thus overcoming the general presumption of non-reimbursement where affiliations exist. See Final Regulations, 62 FR at 27366 ("Moreover, in our view, it is not justifiable to presume that the existence of an affiliation will result in reimbursement or that an affiliated U.S. importer, because of its affiliation, is more likely to file a false certification."). Consequently, CPZ also requests that the Department initiate a "changed circumstances" review under 19 CFR 351.216. Yantai Timken's and Timken's Argument: Yantai Timken and Timken argue that the Department should reject all of CPZ's contentions. First, Yantai Timken and Timken characterize CPZ's argument, that Timken can no longer claim the dumping law as a remedy, as arguing that Yantai Timken's imports are not covered by the antidumping duty order on TRBs from the PRC. Timken asserts that it was not the intent of Congress to deny domestic industries the right to a remedy under the law or the right to demonstrate that their imports were being sold at fair value by virtue of the fact that a petitioning company owns a foreign subsidiary. In essence, that would mean that imports by U.S.-owned subsidiaries of foreign producers subject to an antidumping order would be excluded from coverage by the antidumping laws. Second, they argue that the statute does not require an importer requesting and participating in a new shipper review to demonstrate injury. Moreover, they contend that the antidumping laws allow any importer to request that the Department conduct an administrative or new shipper review of its imports, regardless of whether it is related to a domestic U.S. producer. As a factual matter, they continue, it is always in the best interest of a domestic producer for there to be no sales at less than fair value in the U.S. marketplace. Third, if, as CPZ argues, CDSOA distributions are sufficient to undo any injury caused by dumped imports of a related foreign producer, then they are sufficient to undo any injury caused by dumped imports of any foreign producer. Under this logic, no domestic producer could claim to need the dumping law as a remedy. Fourth, Yantai Timken and Timken agree that the Department should collect reimbursed duties according to the applicable law and established practice, but a finding of reimbursement would not be grounds for rescinding a new shipper review. In fact, they continue, there is no provision in the Act that prohibits the conduct of new shipper reviews if reimbursement of antidumping duties is occurring. If reimbursement to an importer by a producer or exporter is occurring, then the Department's regulations specify that an adjustment will be made to the U.S. price for the reimbursed duties, but there is no provision that the U.S. Government collect the reimbursed duties. Moreover, they further contend that distributions under CDSOA do not constitute reimbursement of antidumping duties to an importer by an exporter or producer, but rather are distributions of money by the U.S. Government to affected domestic producers. Finally, Yantai Timken and Timken contend that there are no relevant changed circumstances because CPZ has not asserted that the domestic industry no longer supports the antidumping duty order on TRBs from China, nor has it provided any other basis for a changed circumstances review. Department's Position: We disagree with CPZ. In accordance with 19 CFR 351.214(f), the Department may rescind a new shipper review, in whole or in part, if: 1) there has not been an entry and sale to an unaffiliated customer in the U.S. of subject merchandise as of the end of the POR, or 2) a party withdraws its request for review not later than 60 days after the date of publication of notice of initiation of the requested review. Yantai Timken does not meet either of these criteria for discontinuing a new shipper review. Therefore, the Department is not rescinding the new shipper review of Yantai Timken. Moreover, we find that the initiation of a changed circumstances review pursuant to 19 CFR 351.216 is not warranted. Section 751(b) of the Act requires a changed circumstances review to be conducted upon receipt of a request by an interested party that shows changed circumstances sufficient to warrant a review. The Department determines on a case-by-case basis whether changed circumstances sufficient to warrant a review exist. In the instant case, CPZ has not provided the Department with any legal basis upon which the Department should initiate a changed circumstances review. We have reviewed the record evidence and do not find existing changed circumstances that are sufficient to warrant a changed circumstances review. Moreover, if CPZ believes that there are changed circumstances with respect to the underlying injury determination, then a request for a changed circumstances review under section 751(b) of the Act would be properly filed with the International Trade Commission rather than the Department. As for CPZ's claims of changed circumstances due to potential "reimbursement" under the CDSOA, the issue is so far merely hypothetical. Given the facts of the case, no evidence has been submitted to the Department demonstrating that actual reimbursement has occurred. When and if such actual reimbursement is proven, as between a domestic producer and an affiliated foreign producer, the Department will then review claims of changed circumstances made in that connection. Comment 3: Surrogate Value for Pallets and Other Factors Respondent's Argument: CPZ contends that, in calculating the surrogate values for pallets and other factors, the Department should disregard small quantities of imports. According to CPZ, the preamble to the Department's regulations states that "aberrational" surrogate input values, such as the small quantities of imports included in the surrogate value calculations in the Preliminary Results, should be disregarded. See Final Regulations, 62 FR at 27366 and e.g., Certain Cased Pencils from the Peoples Republic of China, 59 FR 55625, 55630, dated November 8, 1994 ("Certain Cased Pencils"). CPZ proposes that the Department consider as "aberrational" and disregard shipments from any country which, during the period of April 2000 through January 2001, total less than 100 kilograms, or have values that are very high (e.g., Indian imports of pallets from Japan). Furthermore, CPZ claims that, in calculating the surrogate pallet value for the Preliminary Results, rather than using CPZ's verified pallet weight the Department used an average weight derived from the tenth administrative review in this proceeding. CPZ contends that the Department should use CPZ's pallet weight to calculate the surrogate pallet value for CPZ for the final results. Petitioner's Argument: Concerning CPZ's claimed aberrations in the surrogate value data, the petitioner contends that the Department, in calculating its surrogate values for each input factor, acted reasonably by adopting a weighted average of all applicable values on the record, without attempting to select some values in preference to others. In the absence of an accepted norm, some benchmark on the record, or a determinable pattern from which it can be ascertained that values are aberrational, there is no meaningful reference as to what constitutes "aberrational" figures. Moreover, the petitioner contends that CPZ has not provided any evidence as to what constitutes commercial quantities or what is a high value. Thus, the petitioners conclude that there is no need to eliminate any "aberrations" or alter its methodology for the final results. With regard to the pallet weights, the petitioner contends that the Department followed an appropriate methodology when it determined weights of CPZ's pallets and that CPZ has not shown any reason why the Department should decrease the value of the pallets. If, however, the Department decides to change the preliminary calculations, then it should use the pallet weight actually verified at the verification of CPZ, as noted in the memorandum to John Brinkmann, "Peer Bearing Company - Changshan Verification Report," dated October 3, 2001 ("CPZ Verification Report"). Department's Position: We agree with the petitioner in part and CPZ in part. The Indian import data used to value pallets reports the number of pallets imported. In the TRBs X Decision Memo, (4) the Department ascertained that pallets on average weigh 10 kilograms. See Memorandum to Office Director, "Factors of Production Values Used for the Tenth Administrative Review of the Antidumping Duty Order on Tapered Roller Bearings from the People's Republic of China," dated June 30, 1998. Therefore, in order to convert the Indian Rupees per pallet amount into Indian Rupees per kilogram, we divide the per pallet value by 10 kilograms. We disagree with CPZ's request that we utilize company-specific information for this conversion. In order to be fair to both respondents participating in these new shipper reviews and to promote predictability and consistency, we believe that applying a universal 10 kilogram estimated weight per pallet is the best approach for valuing multiple pallets produced by various companies. Additionally, it is Department practice to calculate a surrogate value based on publicly available information and to apply that information to company-specific data in order to value the various inputs involved in the manufacture of subject merchandise. To value the pallets used by CPZ, we multiplied CPZ's reported kilogram per piece packing factor by the surrogate value calculated using Indian import data. Therefore, the weight of CPZ's pallets is being factored into the final value used by the Department in determining the level of dumping. With respect to CPZ's argument that in calculating the surrogate value for pallets the Department should disregard small quantities of imports, we agree and have decided to omit Indian imports from Italy and Sweden. The omitting of small quantities is consistent with the Department's treatment of Indian imports used to value the steel inputs used in the production of TRBs. See TRBs XIII. Comment 4: Adding Ocean Freight and Marine Insurance to the Japanese Exports to India Data In the Preliminary Results, the Department used Japanese exports to India as the surrogate value for steel, and added to this surrogate value, a cost for freight from Japan to India. To value the cost of freight, the Department used, as facts available, a quotation obtained from Maersk Sealand ("Maersk"). This rate was for shipping between China and the United States. See Issues and Decision Memorandum, at Comment 4. Yantai Timken's and Timken's Argument: Yantai Timken and Timken argue that the Maersk rate used by the Department is inappropriate because it is not a freight rate specific to the route from Japan to India. In a factual submission dated January 10, 2002, Yantai Timken submitted international freight rates for shipments from Japan to India. Accordingly, they contend that the Maersk rate used by the Department is no longer the best facts available because the newly submitted rate is a more accurate measure of the exact freight rate from Japan to India. Moreover, they assert that the record evidence shows that the Maersk quote is significantly higher than the rates offered by other carriers along the Japan-to-India route. Therefore, they conclude that, in order to produce the most accurate estimates of Yantai Timken's costs of production for the final results, the Department should use the actual rates for shipment from Japan to India provided in their January 10 submission. CPZ's Argument: CPZ agrees that the new Japan-to-India rate is better than the freight rate that the Department relied upon for the Preliminary Results because that rate overstated the ocean freight rate. Department's Position: We agree with the parties that the Japan to India freight rate is better information than the rate used in the Preliminary Results, because it reflects the shipping experience we seek to measure. We have adjusted this data to account for the marine insurance costs excluded from the rate quote and to make it contemporaneous with the current PORs. Comment 5: CPZ's Indirect Selling Expenses Petitioner's Argument: The petitioner argues that the Department erred when it relied upon Peer's reported "product line" indirect selling expenses (as adjusted by the Department). The petitioner asserts that indirect selling expenses incurred in the United States should not be limited to the salesmen's salaries or other immediate product line selling functions as reported by CPZ, but rather should include all selling, general, and administrative ("SG&A") expenses incurred by CPZ's affiliated U.S. importer, Peer Bearing Company ("Peer"). In support of its claim, the petitioner points to CPZ's statement that "all of CPZ's U.S. affiliate's expenses are sales related since the affiliate does not perform any manufacturing operations." See CPZ's May 21, 2001, response, at 4. The petitioner further alleges that additional expenses, such as, executive or clerical salaries, should be reclassified as selling expenses and deducted from CEP. Respondent's Argument: CPZ counters that it calculated its indirect selling expenses correctly and that the calculation suggested by the petitioner would grossly distort the margin calculation and lead to double- counting of Peer's expenses. First, CPZ notes that in calculating CPZ's normal value, the Department used a surrogate value for SG&A that is inclusive of all of the expenses (plus some additional expenses) that the Timken Company asserts should be deducted from the CEP starting price. Second, CPZ argues that, in its questionnaire responses, CPZ fully and properly reported Peer's U.S. selling expenses related to its tapered roller bearing product line sales and this information was verified by the Department. Third, CPZ asserts that, consistent with Notice of Final Determinations of Sales at Less Than Fair Value: Bicycles from the People's Republic of China, 61 FR 19026, 19031 (April 30, 1996), the Department properly applied Peer's SG&A expenses because only selling expenses associated with U.S. activity (and not third-country activity) should be deducted from the CEP. CPZ claims that the petitioner's argument will result in the double deduction of SG&A expenses as well as the inclusion of expenses associated only with non-subject merchandise, because the Department would be deducting expenses associated only with non-subject merchandise. Finally, with regard to the petitioner's contention that the Department should include in Peer's indirect selling expenses an additional category of tapered roller bearing product line selling expenses, CPZ claims that these expenses are recorded as part of CPZ's cost of goods sold and, as such, the Department need not separately include these expenses in the pool of indirect selling expenses. Department's Position: We agree with CPZ that its TRB-specific product line selling and warehousing expenses (as further adjusted by the Department in the Preliminary Results) are properly reported as indirect expenses related to sales of the subject merchandise. However, we agree with the petitioner that CPZ did not account for all of Peer's indirect selling expenses. Upon further review of the Peer SG&A accounting documentation obtained at verification (see CPZ Verification Report, at Verification Exhibit 11), we believe that Peer also should have included general administrative expenses and the additional category recorded as a cost of goods sold, as part of its indirect selling expenses related to the sale of subject merchandise. It is the Department's normal practice to consider virtually all expenses as selling expenses in the case of an affiliated U.S. importer that merely sells in the United States. See Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296. As Peer is purely a selling entity, all of its expenses are related to the selling process. Therefore, for these final results, we included Peer's administrative expenses as well as the additional indirect selling expense category in Peer's indirect selling expense ratio. For more discussion on the additional category issue, see CPZ Calculation Memorandum. With regard to CPZ's argument that these expenses are already included in normal value but are being deducted from CEP, the statute requires that we deduct all selling expenses associated with economic activity in the United States. While selling expenses have been included in normal value, the Department has determined that offsetting adjustments can only be made to normal value upon a sufficient showing that differences exist justifying an adjustment. See Bicycles 61 FR 19026, 19031 (April 30, 1996). Comment 6: CPZ's Post-Sale Warehousing Expenses Petitioner's Argument: For the reasons explained above in Comment 5 concerning the calculation of indirect selling expenses, the petitioner contends that the Department should recalculate Peer's indirect selling expenses to include certain types of warehousing expenses. Due to the proprietary nature of the petitioner's comments, however, we cannot provide in this public memorandum a complete summary of the petitioner's arguments. Respondent's Argument: CPZ first notes that, contrary to claims by the petitioner, Peer incurred no post-sale warehousing expenses for the sale of subject merchandise during the POR. Inasmuch as the warehouse expense the Department included in the Preliminary Results included all of the expenses related to Peer's warehouse operations (e.g., rent and labor) for TRBs, CPZ concludes that no further adjustment is necessary. Department's Position: We disagree with the petitioner and, for these final results, have not made any changes to our calculation of Peer's indirect selling expense to account for additional warehousing expenses that were not otherwise added by the Department in the Preliminary Results. In contrast to Peer's general administrative expenses that, as noted in Comment 5, did not flow through to the product line expenses, the warehousing expenses referred to by the petitioner did flow through to Peer's product line selling expenses. Thus, we are not adding additional warehousing expenses to Peer's indirect selling expenses. Comment 7: Price of CPZ's Sample Sale Petitioner's Argument: The petitioner notes that, at verification, the Department found that CPZ made a sample sale to Peer prior to the POR, but that payment for this sale was apparently recorded in the POR, and presumably recorded as a cost of goods sold. The petitioner contends that the cost of this sample sale is a selling expense that is wholly attributable to sales of merchandise from this new source of supply during the accounting period in which the expense was incurred. The petitioner asserts that, unless Peer demonstrates that the cost of this sample is already included in its selling expenses, the Department should add the verified cost to Peer's selling expenses. Respondent's Argument: CPZ argues that the Department properly addressed the issue of the sample sale by making no adjustments because (1) the sample was sold and shipped prior to the POR; (2) the costs associated with the sample are not selling expenses; (3) the non-sales related expenses relating to the sample have been included in Peer's accounting records; and (4) the petitioner has not cited any precedent showing that the Department has ever accepted such a claim. Therefore, CPZ urges the Department to reject this claim for the final results. Department's Position: We disagree with the petitioner that expenses associated with the purchase of the sample from CPZ should be added to Peer's selling expenses. While the Department did not verify how Peer recorded this sample in its cost accounting, it is reasonable to believe that the acquisition cost of the sample would be recorded as inventory by Peer and upon withdrawal from inventory it would be charged according to how it was used by Peer. In this case, while the verification report indicates that the product imported by Peer was "consumed internally by Peer," we did not verify how Peer charged the expense. However, as Peer is a sales, rather than manufacturing company, it is reasonable to believe that any subsequent expenses related to this sample would be recorded by Peer as selling expenses. In as much as we have revised the calculation of Peer's indirect selling expenses for subject merchandise to encompass all appropriate SG&A expenses recorded in Peer's financial information, there is no reason to believe that any expenses related to the sale of this product would have not been captured in those indirect selling expenses. Accordingly, we believe that any selling expenses that may have been associated with this purchase of the sample from Peer's affiliated supplier are accounted for in the indirect selling expense ratio, as revised by the Department. Comment 8: CPZ's Credit Expenses Petitioner's Argument: The petitioner notes that, at the U.S. verification of Peer, the Department calculated a revised short-term interest rate for the POR. The petitioner contends that the Department did not consider the petitioner's comments submitted prior to the Preliminary Results with respect to this expense, which, due to their proprietary nature, cannot be summarized in this public memorandum. Respondent's Argument: CPZ argues that the authority cited by the petitioner is not analogous to CPZ's situation. See Notice of Final Determinations of Sales at Less Than Fair Value: Brake Drums and Brake Rotors From the People's Republic of China, 62 FR 9160, 9172 (February 28, 1997) ("Brake Drums and Brake Rotors from China") (determining that credit in a CEP sale should be based "on the number of days between the date of shipment to the U.S. customer and the date of payment," but finding that the shipment was not placed in the U.S. affiliate's inventory). CPZ claims that, unlike the respondent in Brake Drums and Brake Rotors from China, in the instant case, CPZ's subject sale went through Peer's warehouse, and CPZ reported warehouse expenses. Accordingly, CPZ contends that the Department should reject the petitioner's claim. Department's Position: We agree with CPZ. In Brake Drums and Brake Rotors from China, the Department found that the shipment in question was never placed in the U.S. affiliates's inventory and consequently, that credit should be calculated from the time the merchandise left the home market. During verification, we confirmed that the subject merchandise sold by CPZ through Peer Bearing Company did enter Peer's warehouse inventory. Therefore, we have continued to calculate the credit expenses as we did in the Preliminary Results, from the date of shipment from Peer's warehouse until the date of payment by the U.S. customer. Comment 9: CPZ's Inventory Carrying Costs Petitioner's Argument: The petitioner contends that the Department should correct its calculation of CPZ's inventory carrying costs in order to reflect the revised interest rate determined in connection with the calculation of credit expenses, as noted in the CPZ Verification Report. See also Issues and Decision Memo, Comment 5. Respondent's Argument: CPZ does not object to the petitioner's argument to the extent that it applies only to the verified interest rate and not the calculation. Department's Position: We agree with the petitioner and CPZ, and have made this change for the final results. 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 these new shipper reviews and the final weighted-average dumping margins, for both reviewed firms, in the Federal Register. AGREE _________ DISAGREE _________ Faryar Shirzad Assistant Secretary for Import Administration ________________________ Date ________________________________________________________________________ 1. According to CPZ, pursuant to 19 CFR 351.523(d), there can be no presumption of a countervailable subsidy if the effect is less than 1 percent. 2. The legislative history of the Omnibus Trade and Competitiveness Act of 1988, which provided the current method for determining normal value in nonmarket economy cases, states that "in valuing such (nonmarket economy) factors, Commerce shall avoid using any prices which it has reason to believe or suspect may be dumped or subsidized prices." See H.R. Rep. 100- 576 at 590-591 (1988). Although this section of the Act has been revised since this 1988 legislative history was written, there were no changes made to Section 773(c) of the Act in the 1995 Uruguay Round Agreement Act ("URAA"). See, e.g., S. Rep. 103-412, 2d Sess. at 73 (1994) (stating in the Senate Joint Committee report accompanying the URAA that "the Committee . . . intends no substantive changes" to Section 773(c) of the Act). 3. H. R. Conf. Rep. 100-576, 100th Cong., 2d Sess. 514, 590-91 (1998), reprinted in 1988 U.S.C.A.A.N. 1547, 1623 (1988) (authorizing the Department to avoid using prices that the Department has reason to "believe or suspect" were unfair in calculating normal value in non-market economy ("NME") cases). 4. Memorandum to Office Director, "Factors of Production Values Used for the Tenth Administrative Review of the Antidumping Duty Order on Tapered Roller Bearings and Parts Thereof, Finished and Unfinished, From the People's Republic of China" (June 30, 1998).