65 FR 69284 November 16, 2000 A-580-843 Investigation Public Document GRP II Off. 5: DL/DO MEMORANDUM DATE: November 8, 2000 TO: Joseph A. Spetrini Acting Assistant Secretary for Import Administration FROM: Holly A. Kuga Acting Deputy Assistant Secretary, Group II Import Administration SUBJECT: Decision Memorandum for the Final Determination in the Antidumping Duty Investigation of Expandable Polystyrene Resins From the Republic of Korea Summary We have analyzed the comments in the case and rebuttal briefs submitted by interested parties in the antidumping duty investigation of expandable polystyrene resins from the Republic of Korea. As a result of our analysis, we have made changes in the margin calculations. We recommend that you approve the positions we have developed in the Discussion of Issues section of this memorandum. Below is the complete list of the issues in this investigation for which we received comments from the parties. List of Comments in the Issues and Decision Memorandum GENERAL ISSUES Comment 1: Allegations of Mexican Transshipments Comment 2: Using Monthly Averaging Groups in Place of Annual Averages to Calculate Normal Value II. ISSUES SPECIFIC TO CHEIL INDUSTRIES, INC. (Cheil) Comment 3: Constructed Export Price Offset Comment 4: Duty Drawback Comment 5: Credit Expense - Home Market Interest Rate Comment 6: Reclassification of Certain Sales from Constructed Export Price to Export Price Effect of AK Steel Corporation v. United States, 2000 App. LEXIS 22911 (Fed. Cir. Sept. 12, 2000) Resellers in Question Are Not Affiliated with Cheil Transactions with Resellers are Sales Cheil's Unaffiliated "Commissionaires" Are Distributors If Certain Sales are Reclassified as Export Price, They Should Be Treated as a Separate Price-Averaging Group Comment 7: General & Administrative Expense Comment 8: Inclusion of Import Duties in the Cost of Manufacture III. ISSUES SPECIFIC TO SHINHO PETROCHEMICAL CO. LTD. (Shinho) Comment 9: Credit Expense Comment 10: Gain on Foreign Currency Translation. BACKGROUND On June 26, 2000, the Department of Commerce (the Department) published its preliminary determination in the antidumping investigation of expandable polystyrene resin (EPS) from the Republic of Korea (Korea). The period of investigation (POI) is October 1, 1998, through September 30, 1999. Respondents in this investigation are Cheil and Shinho. We invited parties to comment on the preliminary determination. No party requested a public hearing.(1) SCOPE OF INVESTIGATION For purposes of this investigation, the products covered include certain EPS in primary forms; namely, raw material or resin manufactured in the form of polystyrene beads, whether of regular (shape) type or modified (block) type, regardless of specification, having a weighted-average molecular weight of between 160,000 and 260,000, containing from 3 to 7 percent blowing agents, and having bead sizes ranging from 0.4 mm to 3 mm. Specifically, excluded from the scope of this investigation are off-grade, off-specification EPS. The covered merchandise is found in the Harmonized Tariff Schedule of the United States (HTSUS) subheading 3903.11.00.00. Although this HTSUS subheading is provided for convenience and customs purposes, the written description of the merchandise is dispositive. DISCUSSION OF ISSUES GENERAL ISSUES Comment 1: Allegations of Mexican Transshipments With a reference to a submission of September 18, 2000,(2) the petitioners reiterate their contention that a very large amount of Korean- manufactured EPS has been exported to Mexico and subsequently reexported to the United States under an erroneous country-of-origin designation. The petitioners base their contention on what they have determined to be a "gross inconsistency between official Mexican export data for EPS and official U.S. import data for EPS," and on sworn affidavits presented in the September 18, 2000, submission. The petitioners assert that because evidence on the record is not yet sufficient for the purposes of assigning responsibility for the mischaracterized shipments - and thus for determining whether the integrity of any of the reported databases have been undermined - the Department should request entry summaries from U.S. Customs on an expedited basis for all POI shipments of EPS from Mexico. In this regard, the petitioners identify three scenarios which they consider to be open issues for the instant investigation. •Were transshipments made by some other Korean producer/exporter or consignee of the merchandise? •In light of the Samsung America, Inc. (SAI) deliveries (identified in the Cheil verifications) to Mexico, did certain companies in Mexico re- export this merchandise to the United States? •Considering the fact that the Samsung Group has several production entities in northern Mexico which manufacture electronic devices, and which are themselves likely end users of the merchandise, are these companies placing material in inventory in Mexico and selling that merchandise in the United States? The petitioners note that under none of these scenarios would SAI possess the relevant documents. They argue that U.S. Customs entry summaries for shipments of EPS from Mexico should enable the Department to determine the source of the imports. They state that, should the customs documents reveal that respondents or their affiliates have transhipped EPS, the Department should resort to adverse inferences to protect the integrity of the investigative process. Shinho references its submission of September 26, 2000, in which it argues it did not know if any of its EPS sold to Mexico was subsequently resold in the United States, and asserts that the petitioners presented no credible evidence that any such transshipments took place. Cheil argues that the Department established at both the Korean and CEP verifications that any sales Cheil made to Mexican customers were made through SAI, and that there were no diversions of EPS sales by Cheil through Mexico. Cheil questions the timeliness of the petitioners' request and states that the Department would be within its rights to reject the petitioners' request on this basis. DOC Position: We find that we have addressed the petitioners' concern regarding transshipment to the extent it pertains to the instant investigation. Our verification of the completeness of reported POI sales for both Shinho and Cheil yielded no evidence that either company had transshipped EPS through Mexico, or any other third country, to the United States.(3) Following our normal procedures at the Korean verifications, even before the petitioner had raised this issue, we examined both companies' third-country exports in some detail, which included the identification of purchasers in third countries.(4) We took further steps to test the validity of Cheil's database during our verification of SAI, Cheil's U.S. affiliate, through which Cheil makes all of its Mexican sales.(5) Our examination of SAI's Mexican sales records revealed no irregularities, reconfirming the Department's finding in Korea that all sales to Mexico were made to unaffiliated customers.(6) As a further test, we examined purchases made by SAI's plastics section, which is responsible for sales and purchases of EPS, and found no purchases from Mexico. The September 18, 2000, submission suggests that some Korean-origin EPS may be transshipped through Mexico. We have independently examined entry data for shipments of EPS from Mexico, including an examination of the line-item U.S. Customs Service (Customs) entry database, and a review of entry documents from various ports most often used for Mexican shipments. We have not found any indication that EPS is being transhipped based on our investigation of Customs data and our verification findings. Because this matter falls under the purview of Customs, at the time we requested entry documents from Customs, we discussed the petitioners' concerns with Customs officials. With regard to the instant investigation, we have no evidence that the respondents have presented incomplete sales databases or that they have knowingly transshipped their merchandise through a third country. As noted above, we have referred this matter to Customs. We reserve the right to reopen this investigation should a Customs investigation reveal that the respondents fraudulently failed to report sales of EPS in the United States during the POI that were transhipped through Mexico. See e.g., Ferrosilicon From Brazil, Kazakhstan, People's Republic of China, Russia, Ukraine, and Venezuela, Notice of Rescission of Antidumping Duty Orders on Ferrosilicon from Brazil, Kazakhstan, People's Republic of China, Russia, Ukraine, and Venezuela, Rescission of Countervailing Duty Order on Ferrosilicon from Venezuela, and Termination of Administrative Reviews of Ferrosilicon from Brazil, the People's Republic of China, and Venezuela, 64 FR 51097 (September 21, 1999) (where the Department rescinded the orders on ferrosilicon based upon the ITC's reconsideration of its material injury determination where the ITC made its decision after learning that certain domestic producers plead guilty or had been found guilty of conspiring to fix domestic ferrosilicon prices during the periods of the original investigations); see also Ferrosilicon from Brazil, China, Kazakhstan, Russia, Ukraine, and Venezuela, Inv. Nos. 303- TA-566-570 and 731-TA-641 (Reconsideration), USITC Pub. 3218, at 3-4 (August 24, 1999). Comment 2: Using Monthly Averaging Groups in Place of Annual Averages to Calculate Normal Value The petitioners argue that the Department should base its price-to-price comparisons for each respondent on monthly averaging groups as was done in Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Round Wire from Korea, 64 FR 17342 (April 9, 1999), Comment 1 (Round Wire) and Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Plate in Coils from Korea, 64 FR 15444, 15452 (March 31, 1999) (Coils). The petitioners note that in the preliminary determination, the Department averaged normal value and export prices over the entire POI. The petitioners claim that annual averaging ignored the normal value change(s) during the POI.(7) The petitioners assert that the Department's practice is to use shorter averaging periods than the POI when normal value (NV), export price (EP), or constructed export price (CEP) varies significantly over the POI. Furthermore, the petitioners note that in such cases, reliance on annual averages can mask dumping margins.(8) Therefore, the petitioners argue, due to the changes in NV during the POI, the Department should, in the final determination, employ monthly averaging periods in order to provide for accurate and undistorted price-to-price comparisons. Both Shinho and Cheil challenge the validity of the petitioners' claim that there was any significant fluctuation in home market prices during the POI. Citing 19 CFR 351.414(d), Shinho asserts that the Department's general practice is to calculate weighted averages for the entire POI, and notes that the Department has only deviated from this practice when NV, EP, or CEP differ significantly over the course of the POI, at which time the Department may calculate weighted averages for such shorter periods as the Department deems appropriate. Shinho states that its NV did not vary significantly during the POI. Shinho claims that its changes in home market prices fell short of the level that the Department has considered to be significant enough to invoke separate averaging methods. Similarly, Cheil asserts that its home market prices were relatively stable throughout the POI and that the Department should rely on its normal averaging methodology. DOC Position: Pursuant to 19 CFR 351.414 (d), we will calculate weighted averages for shorter periods of time if the NV, EP, or CEP differ significantly over the course of the POI or period of review. We acknowledge that the petitioners have provided us with two previous cases where the Department did use monthly averaging groups. However, in both Round Wire and Coils the Department used different averaging periods because the NV in the last two months of each of the POI's differed significantly from the NV earlier in the POI due to a significant change in the value of the dollar versus the won. This significant change was evidenced by a precipitous drop in the won's value, which continued over the course of the POI. The fact patterns of Round Wire and Coils are not applicable to the instant case because neither respondent: 1) has experienced continuous significant changes throughout the POI; and 2) Korea was not experiencing significant exchange rate fluctuations during the POI. Rather, the fact pattern in the instant case more closely resembles that found in Notice of Final Determination of Sales at Less Than Fair Value: Certain Polyester Fiber from the Republic of Korea, 65 FR 16880 (March 30, 2000), where, while average monthly prices were higher at the beginning of the POI than at the end, the Department determined that there was no "significant and consistent price decline during the POI." In the instant case, average monthly prices were lower at the beginning of the POI than at the end. However, for most months of the POI there were insignificant price changes. Furthermore, we found that there were month- to-month price increases as well as decreases during the POI, indicating no consistent pattern of price changes. Therefore, for the final determination, we have continued to calculate weighted averages for the entire POI. ISSUES SPECIFIC TO CHEIL Comment 3: Constructed Export Price Offset According to the petitioner, though granted in the preliminary determination, the Department should deny a CEP offset to Cheil for purposes of the final determination. The petitioners contend that while the Department made the prerequisite determination in its level-of-trade (LOT) analysis that "Cheil's sales to end-users in the home market and the end users/commissionaires in the U.S. market appear to be made at distinct points of the chain of distribution,"(9) the Department failed to explain how it identified these different points of the distribution chain. The petitioners also argue that while the Department based the LOT for CEP transactions on constructed sales, the LOT identified in the home market was based on unadjusted transactions. The petitioners assert that the Department's "use of different starting points for CEP and home market sales led inexorably to the Department's determination to grant Cheil a CEP offset."(10) They contend that instead of adjusted constructed sale prices, the Department should have based its LOT determination on unadjusted starting prices to the end user. Cheil argues that the Department's LOT analysis in the preliminary determination was consistent with the Department's past practice and with the Act. Cheil emphasizes that the use of constructed sales for analyzing CEP LOTs is required under the Department's regulations, noting that section 351.412(c)(ii) specifically states that for CEP, the Department "will identify the level of trade based on . . . the starting price, as adjusted under section 772(d) of the Act." Citing Static Random Access Memory Semiconductors from Taiwan; Final Results and Partial Rescission of Antidumping Duty Administrative Review, 65 FR 55005 (September 12, 2000) (SRAMs), Cheil argues that the Department has recently stated that it has consistently adhered to the practice of using constructed sales "in every case" when analyzing LOT.(11) Cheil maintains that the NTN Bearings Corp. of Am. v. United States, 104 F.Supp.2d 110, 131(CIT 2000) (NTN Bearings Corp.) decision specifically upheld the practice of using adjusted sales for CEP LOT analysis. Cheil also disputes the petitioners' contention that the Department failed to explain its preliminary finding that Cheil's home market and CEP sales were made at different points in the chain of distribution, arguing that precedent has shown that the mere reference to the fact that the Department has examined "customers" and "distribution channels" was sufficient.(12) DOC Position: We disagree with the petitioners' assertion that we failed to explain with sufficient clarity how we identified the different points in the chain of distribution for home market and CEP sales on which we based our LOT analysis. We stated explicitly which LOT we would use for each type of transaction and, in the case of CEP sales, said that "the LOT is the level of the constructed sale."(13) In our company-specific LOT analysis for Cheil, we made specific references to the different selling functions related to home market and U.S. sales.(14) We also identified the types of customers we considered in our analysis as the petitioners have recognized ("end users in the home market" and "the importers/commissionaires in the U.S. market). These references, combined with our explanation of the Department's standard CEP methodology, demonstrate how we identified the points in the distribution chain that we would use to determine whether the home market sales were at a more advanced stage of marketing. The NV LOT was based on actual direct sales from Cheil to its domestic customers. For the LOT of CEP transactions, we considered the constructed sales made from Cheil to U.S. importers. These are the constructed sales to the "independent distributors" or "importer/commissionaires," which we identify as a result of our 772(d) adjustments.(15) Having established the LOT, we made a determination that the NV sales are more advanced than the constructed sales based on a clearly delineated analysis of the selling functions.(16) The petitioners, even if they disagree with our methodology, demonstrate, in their other arguments on determining LOT, an understanding of how we have applied it and, therefore, based on our clear references to customer types and selling functions, should understand how we identified the distinct points in the distribution chains for the respective markets. Regarding the petitioners' contention that our use of constructed sales for purposes of determining the LOT of CEP transactions was contrary to law, we recognize that the CIT has held that the Department's practice of determining LOTs for CEP transactions after CEP deductions is an impermissible interpretation of section 772(d) of the Act. See Borden, 4 F. Supp. 2d at 1241- 1242. The Department believes, however, that its practice is in full compliance with the statute. On June 4, 1999, the CIT entered a final judgement in Borden on the LOT issue. See Borden, Inc., v. United States, Court No. 96-08-01970, Slip Op. 99-50 (CIT June 4, 1999). The government has filed an appeal of Borden which is pending before the U.S. Court of Appeals for the Federal Circuit (CAFC). Consequently, the Department has continued to follow its normal practice of adjusting CEP under section 772(d) of the Act prior to starting a LOT analysis, as articulated in the Department's regulations. See CFR 19 section 351.412. We note that the recent NTN Bearings Corp. of Am., et al v. United States, 104 F.Supp.2d 110 (CIT 2000) (NTN Bearing Corp.) decision supports the Department's practice of using the CEP as adjusted under section 772(d) of the Act prior to starting a LOT analysis. In NTN Bearing Corp., NTN argued that the Department improperly denied a price-based LOT adjustment under 1677(a)(7)(A) for CEP sales because the Department did not base NTN's CEP LOT on the sale to the first unaffiliated purchaser. NTN claimed that this meant using the unadjusted starting price. NTN cited to the first Borden decision in support of its argument. The CIT did not accept NTN's argument that an unadjusted price should be used and explicitly declined to follow the rationale of Borden.(17) The Department has consistently stated that the Act and the SAA support analyzing the LOT of CEP sales at the constructed level, after expenses associated with economic activities occurring in the United States have been deducted pursuant to section 772(d) of the Act. In the preamble to its proposed regulations, the Department stated: With respect to the identification of levels of trade, some commentators argued that, consistent with past practice, the Department should base level of trade on the starting price for both EP and CEP sales. The Department believes that this proposal is not supported by the SAA. If the starting price is used for all U.S. sales, the Department's ability to make meaningful comparisons at the same level of trade (or appropriate adjustments for differences in levels of trade) would be severely undermined in cases involving CEP sales. As noted by other commentators, using the starting price to determine the level of trade of both types of U.S. sales would result in a finding of different levels of trade for an EP sale and a CEP sale adjusted to a price that reflected the same selling functions. Accordingly, the regulations specify that the level of trade analyzed for EP sales is that of the starting price, and for CEP sales it is the constructed level of trade of the price after the deduction of U.S. selling expenses and profit. See Antidumping Duties; Countervailing Duties; Notice of Proposed Rule Making and Request for Public Comments, 61 FR 7308, 7347 (February 27, 1996). Consistent with the above position, in those cases where a LOT comparison is warranted and possible, the Department evaluates the LOT for CEP sales based on the price after adjustments are made under section 772(d) of the Act. See, e.g., Large Newspaper Printing Presses and Components Thereof, Whether Assembled of Unassembled, From Japan: Notice of Final Determination of Sales at Less Than Fair Value, 61 FR 38139, 38143 (July 23, 1996). We note that in every case decided under the revised antidumping statute, the Department has consistently adhered to this interpretation of the SAA and of the Act. See, e.g., Extruded Rubber Thread From Malaysia; Final Results of Antidumping Duty Administrative Review, 65 FR 6140, 6141 (February 8, 2000); Notice of Final Determination of Sales at Less Than Fair Value: Dynamic Random Access Memory Semiconductors of One Megabit and Above (DRAMs) from Taiwan, 64 FR 56308, 56313 (October 19, 1999); Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts Thereof from France, Germany, Italy, Japan, Singapore, and the United Kingdom; Final Results of Antidumping Duty Administrative Reviews, 62 FR 2081, 2106 (January 15, 1997); Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide from the Netherlands; Final Results of Antidumping Administrative Review, 61 FR 51406, 51408 (October 2, 1996); and SRAMS, 65 FR 55005, (September 12, 2000). In the instant case, we determined that all of Cheil's sales through SAI were CEP transactions, and for those sales the constructed LOT should be used. We verified the differences in selling functions performed in making sales to the foreign and the U.S. markets, after all selling expenses incurred in the United States were deducted from the starting price. As stated in the SAA, a CEP offset adjustment will be made only where: 1) the data available do not form an appropriate basis for determining a LOT adjustment under section 773(a)(7)(A)(ii) of the Act; and 2) NV is established at a LOT more remote from the factory than the LOT of the CEP transaction. Because we find that only one LOT existed in the home market during the POI, we are unable to make a LOT adjustment under section 773(a)(7)(A)(ii) of the Act. See Preliminary Determination, 65 FR at 39354. Moreover, because NV is based on a price which reflects full selling activities, while the CEP after adjustment is based on a price which reflects few selling activities by Cheil, we find that the NV is at a LOT more remote from the factory than the LOT of the CEP. Accordingly, we find that our decision to grant a CEP offset to Cheil is consistent with the statute, and that this decision is supported by substantial evidence on the record. Consequently, consistent with our preliminary determination, we have continued to analyze the LOT based on adjusted CEP prices, rather than the starting CEP prices, and we have continued to grant a CEP offset to Cheil for its sales through SAI for purposes of the final determination. Comment 4: Duty Drawback The petitioners argue that Cheil's method of allocating duty drawback to U.S. sales and as a billing adjustment in certain home market "L/C sales"(18) is inherently distortive. The petitioners note that Cheil has reported that it may apply for duty drawback by matching any export permit to any import permit for raw materials within a two-year window and, for that reason, Cheil is unable to measure duty drawback on an actual sale-by- sale basis. The petitioners argue that Cheil has arbitrarily allocated different proportions of its overall duty drawback received from U.S. exports and from the domestic L/C sales, with the effect of skewing the margin calculation. The petitioners cite Certain Polyester Staple Fiber: Notice of Final Determination of Sales at Less Than Fair Value 65 FR 16880 (March 30, 2000) (Polyester Staple Fiber), in which the Department rejected a respondent's allocation of duty drawback between the U.S. and the Canadian exports based on Department's determination that "there appears to be significantly less duty drawback assigned to its reported third country sales."(19) The petitioners note that in Polyester Staple Fiber, the Department allocated the total reported duty drawback for U.S. and Canadian shipments during the POI over the total volume of those exports. The petitioners argue that, in the instant case, the Department should reallocate Cheil's duty drawback adjustments for U.S. exports and for the L/C sales in the same fashion, and calculate a single average duty drawback amount based on the combined amounts for these two types of sales. Cheil responds that it reported duty drawback, as verified, in a manner consistent with the Department's reporting requirements. Cheil observes that, because its procedures for receiving duty drawback on direct export sales differs from procedures for receiving duty drawback-related billing adjustments on certain domestic sales, it maintains separate records, in the normal course of business, for duty drawback received on direct exports and revenue from home market sales linked to customers' duty drawback. Finally, Cheil notes that it has been the Department's consistent practice to accept duty drawback reported as averages when it was not practicable to report duty drawback on a more specific basis.(20) Cheil states that the Department specifically reviewed and confirmed that, based on the Korean system, Cheil was unable to report duty drawback on a transaction-specific basis. Cheil also states that the Department confirmed that Cheil's procedures for receiving duty drawback on direct export sales differed from its procedures for receiving tax remission from certain domestic sales. Cheil maintains that it demonstrated to the Department how it was able to report separate average per-metric ton duty drawback amounts based on the separate records for the two types of sales. Cheil rejects the petitioner's position that duty drawback should be reported as a single average per-metric ton duty drawback amount for both types of sales. Cheil argues that the petitioner's reliance on Polyester Staple Fiber to argue for a single average was misplaced. Cheil notes that in that case, the respondent had the same procedures for receiving duty drawback from its direct exports to the United States and to Canada, in contrast to the separate procedures that Cheil has for receiving duty drawback on direct exports and on certain domestic L/C sales. Cheil asserts that its separate records for duty drawback received from direct exports and certain domestic sales has enabled it to report more specific duty drawback amounts for each type of sale then would be the case with the single average proposed by the petitioners. DOC Position: An upward adjustment to the U.S. sales price for duty drawback is provided for in section 772(c)(1)(B) of the Act. The Department utilizes a two-prong test to determine whether a party is entitled to a duty drawback adjustment: 1) the import duty and rebate must be directly linked to, and dependent upon, one another; and 2) the company claiming the adjustment must demonstrate that there were sufficient imports of imported raw materials to account for the duty drawback received on exports of the manufactured products. See, e.g., Silicon Metal from Brazil: Notice of Final Results of Antidumping Duty Administrative Review, 64 FR 6305, 6318 (February 9, 1999). This test was in Far East Machinery Co. v. United States, 699 F. Supp. 309, 311 (CIT 1988). The CIT has consistently held that there is no requirement that a specific input be traced from importation through exportation before allowing drawback on duties paid.(21) The only limit on the allowance for duty drawback is that the adjustment to U.S. sales price may not exceed the amount of import duty actually paid.(22) Cheil satisfied both prongs of the aforementioned test and was therefore entitled to claim a duty drawback adjustment for its U.S. sales. Cheil's duty drawback rebates are received under Korea's individual application system, which limits such rebates to actual duties paid. Duty drawback was reviewed at verification, and no inconsistencies with Cheil's reported methodology were noted.(23) At verification we were able to confirm that the reported average amount of duty drawback received on direct exports was accurately reflected in Cheil's accounting records. Where Cheil reported billing adjustments on domestic L/C sales we have allowed those adjustments to Cheil's reported prices. In considering the petitioners' comments that separate averages for duty drawback received on direct exports and for the revenue received from L/C sales as a billing adjustment are distortive, we consider it important to distinguish, as Cheil has done, between duty drawback that Cheil collects for its own exports of EPS and the upward price adjustment on certain domestic sales for which Cheil's customers receive duty drawback when they subsequently export the EPS as an input in their own product. Based on the facts of this case, we have not changed the amount of the home market price adjustment or the duty drawback allowance for U.S. sales. Comment 5: Credit Expense - Home Market Interest Rate The petitioners argue that the Department should use dollar interest rates to calculate the imputed credit expense for certain Cheil home market sales that were denominated in dollars. Cheil counters that the Department was correct in the preliminary determination when it applied the Korean won interest rate to determine credit expenses for home market L/C sales denominated in U.S. dollars. Cheil notes that, although these particular home market sales are denominated in dollars, and Cheil reported them as such in accordance with the Department's instructions, the related selling expenses for these sales are incurred in won. Cheil calculated the credit expense for these dollar-denominated sales by converting the dollar amount to a won amount based on the won exchange rate on the date of sale, and then applying the same won interest rate-based credit formula it used to calculate the credit expense for all home market sales. Cheil further states that if the Department determines that a U.S. interest rate should apply to some of Cheil's home market L/C sales, it should only apply the dollar interest rate credit expense to those sales denominated in U.S. dollars. DOC Position: We agree with the petitioners that the credit expense calculation for Cheil's dollar-denominated sales should be based on a U.S. dollar interest rate. It is the Department's normal practice to base its imputed credit calculation on interest rates for the currency in which a given sale is denominated, since the imputed credit expense measures the opportunity cost of payment foregone in that particular currency.(24) Cheil correctly reported in won certain other selling expenses incurred in won. However, if the sales price is denominated in dollars, the credit expense should be measured in dollars. Therefore, for the final determination, we have applied a dollar interest rate based on Cheil's actual short term borrowings in our calculation of imputed credit expense for those L/C sales that are denominated in dollars. Comment 6: Reclassification of Certain Sales from Constructed Export Price to Export Price Cheil contends that the Department must reclassify sales that were reported as sales made through unaffiliated "commissionaires" to end users from CEP sales to EP transactions on the basis of the following arguments:(25) •Under the recent CAFC decision AK Steel Corporation v. United States (AK Steel),(26) the Department no longer has the discretion to determine whether a sale was either an EP or a CEP transaction outside of what the Court has defined as the plain meaning of the statute. According to AK Steel, the plain meaning of the statute dictates that a sale between a producer/exporter and an unaffiliated U.S. purchaser must be classified as an EP transaction. •The record evidence verified by the Department clearly established that the U.S. customers in question were not affiliated with Cheil. •The record evidence verified by the Department confirms that the transactions between Cheil and the U.S. customers in question constituted "sales." Effect of AK Steel Corporation v. United States, 2000 App. LEXIS 22911 (Fed. Cir. Sept. 12, 2000) Cheil cites the CAFC's conclusion in AK Steel that "Commerce looks to the first sale to a purchaser that is not affiliated with the producer or exporter. If the producer or exporter sells directly to the U.S. purchaser, that sale is used because it is considered an arm's length transaction. In that situation the sale is classified as EP."(27) Cheil finds that the Court reiterates this point when it states that sales to unaffiliated purchasers can only fall under one of two classifications: "1) between an unaffiliated U.S. purchaser and the producer or exporter, and thus EP; or 2) between the unaffiliated U.S. purchaser and another entity in the United States that must, by definition, be related to the producer, and thus CEP."(28) Cheil notes that in AK Steel the Court does not discuss the requirement that a respondent show that the sale or agreement to sell takes place "outside the United States." To Cheil, this suggests that once it has been established that a producer or exporter has sold the merchandise directly to an unaffiliated purchaser, the Court assumes that the sale has taken place "outside the United States." Cheil states that although a showing that the sale took place "outside the United States" may not be required in these instances, it has satisfied this requirement in the case of the sales which it wants reclassified as EP. Resellers in Question Are Not Affiliated with Cheil Cheil asserts that the fact that the customers in question were not affiliated with Cheil has never been disputed. Cheil states that the Department reviewed Cheil's relationships and sales processes with these companies at verification and established that these customers were "extremely large, diversified distributors of styrenic chemicals, that they had multiple office locations around the world and that they have multiple sources of supply."(29) Cheil states that for EPS specifically, the Department verified that one of the resellers in question had several sources, including one of the petitioners in the proceeding. Thus, Cheil argues that "it is inconceivable that these companies could even be deemed affiliated by virtue of close customer-supplier relationship."(30) Transactions with Resellers are Sales Cheil supports its contention that the record as verified confirms that the transactions between Cheil and the companies were "sales" on the basis of the terms of sales that were verified by the Department. Cheil argues in its brief that, in accordance with U.S. Customs Service and international customs authority (INCOTERM) regulations, the terms of sale show that "there was a transfer of ownership which occurred upon Cheil's delivery of merchandise to the port in Korea." In addition, Cheil states that the Department verified that it was the unaffiliated resellers, and not these resellers' ultimate end-user customers, who paid Cheil for the merchandise. Cheil also maintains that it was clarified at verification that the resellers, and not Cheil, negotiate terms of the sales with the resellers' ultimate end-user customers. Cheil's Unaffiliated "Commissionaires" Are Distributors Cheil concludes that, despite its references to the customers in question as "commissionaires," they are, as described in the Department's verification report, specialized distributors of styrenic material and fibers."(31) Cheil argues on this basis that sales to these customers should be treated no differently than sales to Cheil's unaffiliated distributor in the United States (which were classified as EP sales in the preliminary determination). If Certain Sales are Reclassified as EP, They Should Be Treated as a Separate Price-Averaging Group The petitioners do not dispute Cheil's contention that certain sales, previously identified as "commissionaire" sales, should be reclassified as EP transactions; however, the petitioners argue that if these sales are reclassified as EP sales, the Department should utilize a separate export price-averaging group for the reclassified group of transactions for comparison to NV. In other words, the petitioners do not want the Department to average these reclassified transactions in a single group with the distributor sales that are already treated as EP at the same LOT. In requesting a separate price-averaging group for reclassified transactions, the petitioners make the following arguments: •The SAA(32) and regulations provide that the Department may decide to utilize a separate price-averaging group based on differences in customer type, among other criteria. •By Cheil's own admission in its response, the sales which Cheil would have reclassified as EP are made to a different class of customer than the distributor sales which were already treated as EP transactions in the preliminary determination. •The petitioners cite Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909 (LTFV Final February 23, 1998) (SRAMs) as precedent for establishing separate price-averaging groups, based on "consistent and uniform differences in prices between customer types." The petitioners cite the SAA discussion of criteria the Department will consider to establish averaging groups: To ensure that these averages are meaningful, Commerce will calculate averages for comparable sales of subject merchandise to the U.S. and sales of foreign like products. In determining the comparability of sales for purposes of inclusion in a particular average, Commerce will consider factors it deems appropriate, such as the physical characteristics of the merchandise, the region of the country in which the merchandise is sold, the time period, and the class of customer involved. SAA at 842. The petitioners note that these criteria are recapitulated in 19 CFR 351.414(d). The petitioners contend that Cheil has admitted that the transactions in question went to a "distinct class of customer." To underline this point, the petitioners cite Cheil's assertion that "{i}ndeed, the Department verified that these customers were extremely large, diversified distributors of styrenic chemicals, that they had multiple office locations around the world and that they have multiple sources of supply."(33) The petitioners highlight the fact that Cheil itself originally stated in its response that, "{f}or U.S. sales, the sales were made either to unaffiliated U.S. distributors (U.S. sales channel 2) or to unaffiliated U.S. end users through U.S. commissionaires (U.S. Sales Channel 3)."(34) The petitioners also identify substantial differences in the selling activities that Cheil performs for distributors and end users (i.e., for the transactions involving unaffiliated resellers previously identified as commissionaires that Cheil wants reclassified). These differences involve arrangement of freight and warranty services. The petitioners cite the 1998 final determination for static random access memory semiconductors from Taiwan, in which the Department considered a separate price-averaging group based on "customer type."(35) The petitioners claim that in that case the Department stated that "{i}n order to determine whether we should base price-averaging groups on customer types, we conducted an analysis of the prices submitted by the respondents." (36) The petitioners suggest that Cheil has admitted that there was a "consistent and uniform difference" in prices between customer types in question ("distributor" and "commissionaire") when it stated in its response that "{g}enerally speaking, however, in the U.S. market, sales prices to end users through commissionaires are higher than sales to distributors, because prices to end users include the amount of the commission."(37) DOC Position: We agree with Cheil that certain sales to unaffiliated resellers that were treated as CEP transactions in the preliminary determination should be reclassified as EP sales. The record evidence as verified indicates that the sales in question are made outside the United States to unaffiliated U.S. resellers and, therefore, these sales must be reclassified as EP sales. Our reassessment of the sales in question is due in large part to the clarification of the record at verification, as indicated in Cheil's arguments. Based upon our verification, we established that there were actually two types of the so-called "commissionaire" sales, in contrast to our earlier understanding that these sales constituted one separate channel of distribution. The two types of commissionaire are as follows: Sales through SAI - We have established that SAI, for purposes of our dumping analysis, is an affiliate of Cheil based in the United States. For sales made through SAI, Cheil negotiates the terms of the sale directly with the first unaffiliated U.S. customers.(38) Once the terms are negotiated, SAI accepts and confirms the purchase order. SAI subsequently invoices the unaffiliated customer and collects payment from this customer, and the goods are transferred to the customer.(39) Therefore, we find that the first sale to an "unaffiliated purchaser" occurs in the United States and was made by SAI. Based on this fact pattern, we will continue to treat Cheil sales through SAI as CEP transactions pursuant to section 772(b) of the Act. Sales to unaffiliated resellers previously identified as "commissionaires" - These are the sales which we have determined should be reclassified as EP transactions. We have established on the record that the resellers in question are large independent distributors with multiple sources of supply. We have also determined that these companies, unlike SAI, negotiate their own EPS sales with end users, and that Cheil is not involved in that process as we previously believed to be the case. Consequently, pursuant to section 772(a) of the Act, we are reclassifying these sales as EP transactions. We do not agree with the petitioners' argument that we utilize one price- averaging group for the sales to resellers which we have decided to reclassify as EP, and another averaging group for distributor sales that we already treated as EP in the preliminary determination. In making their argument, the petitioners highlight Cheil's admission that there are general price differences between those specific distributor sales and sales to end users which include a "commission." When we consider the unaffiliated "commissionaire" sales as EP transactions, we look at the sale from Cheil to the unaffiliated reseller, and not at the reseller's sale to its customer, which includes the so-called "commission" which we established at verification is simply a mark-up that the unaffiliated resellers charge to their customers.(40) We have determined that the unaffiliated resellers in question are in fact the same type of customer as Cheil's other distributors in the EP group.(41) The single-averaging group which we are utilizing for our EP sales comparison, as provided in section 351.414(d)(1) of the Department's regulations, consists of virtually identical subject merchandise that is sold to the United States at the same LOT in conformity with section 351.414(d)(2) of the regulations. We have identified no distinctions among Cheil's EP transactions that would require a subdivision of the single-averaging group that we are using. We note that, in SRAMs, the Department analyzed differences in prices by customer type and decided that there were not consistent and uniform differences in prices and that we would not use specific price-averaging groups for different customer types.(42) In the instant investigation, we have determined that within the EP group, all of the customers are independent distributors. Thus, we do not have a customer type distinction to consider. Comment 7: General & Administrative Expense Cheil argues that for the final determination, the Department should use Cheil's chemical division general & administrative expense (G&A) ratio, as opposed to a company-wide G&A ratio. Cheil points out that the statute (see section 773(f)(1)(A)of the Act) directs the Department to use a respondent's normal books and records if such records are maintained in accordance with generally accepted accounting principles (GAAP) in the exporting country and reasonably reflect the cost of the product under consideration. According to Cheil, its accounting system is maintained in accordance with Korean GAAP, and under this system Cheil accounts separately for the G&A expenses incurred by each of its four divisions. Cheil contends that its reported G&A ratio reasonably reflects the costs of the product under consideration because it includes both company-wide and divisional expenses particular to EPS. While Cheil acknowledges that it is the Department's normal practice to calculate a company-wide G&A ratio, Cheil cites to the Final Determination of Sales at Less Than Fair Value: Furfuryl Alcohol from South Africa, 60 FR 22550, 22556 (May 8, 1995) (Furfuryl Alcohol)to support its contention that the Department used a divisional G&A methodology in the past when the respondent provided case- specific facts that clearly support a departure from the Department's normal practice. Cheil argues that in a number of recent proceedings where the respondents did not maintain specific divisional accounts in the general ledger, or failed to provide specific reasons why their methodology was more reasonable than the Department's, the Department did not use divisional G&A ratios. Cheil states that it has established both that it maintains separate accounting records for its chemical division, and that the use of a company-wide G&A rate is not reasonable because of the distortive effect of the high G&A ratios of the textile and fashion divisions. Cheil further suggests, citing Final Results of Antidumping Duty Administrative Review: Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From The United Kingdom, 60 FR 44009, 44012 (August 24, 1995) (Certain Hot-Rolled Steel Products From the UK), that if the Department determines to use a company- wide G&A ratio, it must exclude from the calculation certain expenses unrelated to the merchandise under consideration, as well as certain items which are accounted for as G&A under Cheil's normal accounting system, but are in fact selling expenses related to non-subject merchandise. Cheil notes that it did in fact calculate its G&A expense rate on a company-wide basis. According to Cheil, its reported G&A ratio reflects a multi-tiered approach. That is, a combination of G&A expenses incurred for the company as a whole, i.e., the corporate service division G&A expenses, and G&A expenses incurred directly by the chemical division. Cheil contends that, while the corporate service division provides administrative services that benefit the company's three separate divisions, G&A expenses incurred at the chemical division level benefit only that division and, with the exception of the corporate service division, no other division recognizes in its accounts the expenses of other divisions. The petitioners, citing Notice of Final Determination of Sales at Less Than Fair Value: Stainless Steel Round Wire from Canada, 64 FR 17324, 17325 (April 9, 1999) (Stainless Steel Round Wire from Canada), argue that it is the Department's normal methodology that G&A calculations reflect the company as a whole rather than discrete portions of the company. Since Cheil did not report G&A on a company-wide basis, the petitioners argue, the Department should correct this calculation for the final determination. DOC Position: The antidumping law does not prescribe a specific method for calculating the G&A expense rate. When a statute is silent or ambiguous, the determination of a reasonable and appropriate method is left to the discretion of the Department. Because there is no bright-line definition in the Act of what a G&A expense is or how the G&A expense rate should be calculated, the Department has, over time, developed a consistent and predictable practice for calculating and allocating G&A expenses. This consistent and predictable method is to calculate the rate based on the company-wide G&A costs incurred by the producing company allocated over the producing company's company-wide cost of sales and not on a divisional or product-specific basis. See Stainless Steel Round Wire from Canada at 17325; see also Notice of Final Determination of Sales at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Japan, 64 FR 24329, 24354 (May 6, 1999). This practice is identified in the Department's standard section D questionnaire, which instructs that the G&A expense rate should be calculated as the ratio of total company- wide G&A expenses divided by cost of goods sold. See section D questionnaire, page D-13. This approach is consistent with Korean GAAP's treatment of such period costs and recognizes the general nature of these expenses and the fact that they relate to the activities of the company as a whole rather than to a particular production process. The Department's methodology also avoids any distortions that may result if, for business reasons, greater amounts of company-wide general expenses are allocated disproportionally between divisions. Like many cost allocation issues that arise during the course of an antidumping proceeding, there may be more than one way to reasonably allocate the costs at issue. This is precisely why we have developed a consistent and predictable approach to allocating G&A costs. The Department's normal methodology for calculating a respondent's G&A expense ratio is reasonable, it is predictable and not results-oriented. To allow a respondent to choose between the Department's normal method and an alternative method simply because the outcome of one method is a lower rate would encourage respondents to adopt a results-oriented approach. That is, parties will only point out the other methods, as Cheil has, when it benefits them. Cheil's argument that its company-wide G&A rate is unreasonable simply because the rates assigned to other divisions are higher is unpersuasive. If the costs Cheil identified as divisional G&A expenses only relate to the products of that division, they may be more accurately accounted for as part of the cost of manufacturing of that merchandise and not G&A costs. However, Cheil did not report these costs as part of its company-wide cost of manufacturing in its audited financial statements. In addition, we note that the Furfuryl Alcohol determination cited by Cheil dates from 1995. The Department's calculation of G&A expenses in Furfuryl Alcohol was specific to the facts of that case (the specific details are proprietary). Since Furfuryl Alcohol, the Department has consistently followed its normal practice of not allowing divisional G&A and calculating company-wide G&A. Therefore, we continue to find that Cheil's costs are general in nature and relate to the operations of the company as a whole. Accordingly, we computed Cheil's G&A expense rate in accordance with the Department's normal practice on a company-wide basis. Regarding Cheil's comment that if we use company-wide G&A, we should exclude certain expenses unrelated to the cost of production for the merchandise under investigation, we note that, in developing the company- wide G&A rate, we have excluded certain selling and other expenses because these costs do not relate to the cost of production. See Memorandum from Ernest Gziryan and Taija Slaughter to Neal Halper: Cost of Production and Constructed Value Calculation Adjustments for the Final Determination; Antidumping Duty Investigation of Expandable Polystyrene Resins From the South Korea (November 8, 2000), Attachment 1. Comment 8: Inclusion of Import Duties in the Cost of Manufacture Cheil contends that, consistent with the Department's practice, the Department should exclude from the COP all import duties incurred on purchases of styrene monomer. Citing Final Results of Antidumping Duty Administrative Review of Solid Urea From the Former German Democratic Republic, 62 FR 61271, 61273 (November 17, 1997) (Solid Urea From Germany), Cheil argues that a party's costs should reflect the actual expenses incurred, and accordingly, if a party receives benefits that are linked to specific costs, the benefits should offset those costs. Cheil claims that because its customers pay for the import duties on the imported raw materials, the Department should exclude all import duties incurred on its purchases of styrene monomer. In the event that the Department does not exclude all import duties incurred, Cheil urges the Department, at a minimum, to exclude the verified amount of duties refunded to Cheil at the time of verification. The petitioners argue that the entire amount of the import duties should be added back to Cheil's material cost in order to parallel the upward adjustment of U.S. sales prices for duty drawback and inclusion of the duties in home market prices. The petitioners contend that, if the Department determines to correct material cost for refunded import duties, it should, at a minimum, take into account the fact that only a portion of the duties incurred by Cheil were refunded during the POI. Citing Stainless Steel Bar From India and Camargo Correa Metais, S.A. v. United States, Slip. Op. 98-152, (CIT 1998), the petitioners state that, if the Department deducts the import duties from Cheil's material cost, it should deny the duty drawback adjustment to U.S. price. DOC Position: We agree with the petitioners. The cases cited by Cheil are unsupportive in that the income and expense items at issue in those proceedings were unrelated to the issue of duties and duty drawback. It is the Department's practice to offset the actual costs with the benefits received which are linked to the specific costs. See Solid Urea From Germany. However, the law, recognizing that this issue is common for most of the cases, provides for a specific treatment of import duties paid and duty drawback refunded. Section 772(c)(1)(B) of the Act requires the Department to increase EP and CEP by the amount of any import duties imposed by the country of exportation which have been rebated to the company. Thus, the Department's practice to treat duty drawback as an adjustment to the sales price and to include import duties in the cost of direct materials is consistent with the law. See Oil Country Tubular Goods from Korea: Final Results of Antidumping Duty Administrative Review, 64 FR 13169, 13172 (March 17, 1999); see also Notice of Final Determination of Sales at Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR 31411, 31413 (June 9, 1998). In this case, we are adding a tax remission (linked to customers' duty drawback) to the home market price for certain home market "L/C" sales before running the cost test. See Comment 4 above on duty drawback. To also include this amount as reduction in cost would result in double counting. ISSUES SPECIFIC TO SHINHO Comment 9: Credit Expense Citing to the Department's Policy Bulletin 98.2 (1998), Shinho argues that the Department's longstanding policy and practice is to calculate imputed credit expense based on the respondent's borrowing experience, when the respondent has short-term borrowing in the relevant market.(43) Shinho mentions that as a result of its bankruptcy, it was undergoing bank- supervised reorganization, and its outstanding short-term loans were converted to long-term loans. Shinho states that neither it nor its lender anticipated that the debt would be converted at the time the terms of the loans were established. Therefore, Shinho argues that the conversion of its debt does not effect the validity of the loans. Shinho states that the duration of a short-term loan has never been a consideration for the Department when calculating a short-term interest rate, so long as the loan meets the definition of short-term, which is less than one year.(44) Shinho further argues that the Department must use Shinho's rate unless the criteria for using facts available are met. Shinho notes that the Department has applied facts available mostly in situations where the loan was from an affiliated party.(45) The petitioners disagree with using Shinho's actual rate because Shinho only made payments on its short-term debt through December 31, 1998, three months into the POI, at which time its short-term debt was converted to long-term debt. Therefore, petitioners argue that using Shinho's interest rates will reflect Shinho's cost of credit for only a small part of the POI. Petitioners argue that for the final determination, the Department should utilize, for the last nine months of the POI, the interest rates pertaining to medium-term loans outstanding for that period, and should utilize for the first three months of the POI the interest rates pertaining to the short-term loans outstanding for the period. DOC Position: We disagree with the petitioners' argument that we should use two different interest rates for the POI. Although Shinho's actual short-term borrowing lasted three months out of the POI, it is the Department's practice to calculate imputed credit expense based on the respondent's actual borrowing experience when the respondent has short term borrowing in the relevant market. See Policy Bulletin 98.2, "Imputed Credit Expenses and Interest Rates" at 3 (February 23, 1998). For the purpose of calculating imputed credit expense, we used a short- term interest rate in the currency in which the sales were denominated. At verification, we determined that Shinho's interest rate was reasonable, readily obtainable, and representative of usual commercial behavior. We based this interest rate on the respondent's weighted-averaged short-term borrowing experience in the currency of the transaction. See Id. Furthermore, the fact that Shinho had only made payments using a short- term interest rate for three months of the POI does not make the use of the short-term interest rate unreasonable. At verification we found no evidence that the bank from which Shinho obtained its short-term loan, had any knowledge of Shinho's impending reorganization and bankruptcy. We found nothing at verification that would suggest that Shinho's short-term loan was outside of its normal commercial business and that the loan was not representative of Shinho's actual borrowing rate. Accordingly, for the final determination, we used Shinho's actual reported short-term borrowing rate because it was based on Shinho's actual borrowing. Comment 10: Foreign Exchange Gains and Losses Shinho argues that it properly included an offset to interest expense for the total foreign exchange gain related to long-term loans in its financial expense rate calculation. Shinho asserts that in its normal books and records, both current and long-term foreign exchange gains and losses are recognized in the year incurred. Shinho continues that the Department is mandated by section 773(f)(1)(A) of the Act to calculate costs based on the respondents normal books and records if such records are in accordance with the home country's GAAP and reasonably reflect the costs associated with the production of subject merchandise. Therefore, Shinho concludes that the Department must include the total foreign exchange gain in the financial expense rate calculation. As support for this assertion, Shinho cites Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from Korea, 64 FR 73196, 73203 (December 29, 1999) (Plate from Korea), where the Department found that "Korean GAAP provides that all foreign exchange gains and losses related to long-term debt may be recognized in full, in the year incurred." See Id. Shinho further contends that the court ruled that amortization of foreign exchange losses distorts the financial expense rate calculation because deferring such losses negates the matching principle between revenues and expenses. Specifically, the court ruled in Micron v. United States, 893 F.Supp. 21, 34 (CIT 1995) that "translation losses relate directly to events occurring during the POI, and they should not be deferred to future periods." See Id. As such, Shinho states that the court's decision requires the Department to include the full amount of its foreign exchange gains in the financial expense rate calculation, not simply the gain related to the current portion of the long-term debt. However, if the Department were to argue that only the current portion of the foreign exchange gains should be included in the financial expense rate calculation, Shinho maintains that only the current portion of the foreign exchange losses should be included. Petitioners did not comment on this issue. DOC Position: It is the Department's normal practice to amortize the net foreign exchange gains and losses incurred on debt over the maturities of the debt and include only the current portion of the net gain or loss in the cost of production and constructed value. See, e.g., Memorandum to Troy H. Cribb from Richard W. Moreland, Re: Issues and Decision Memorandum for the Antidumping Duty Administrative Review on Frozen Concentrated Orange Juice from Brazil dated October 11, 2000, and Notice of Final Determination of Sales Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR 31411, 31430 (June 9, 1998) (Salmon from Chile) (where, in both cases, the Department included in the cost of production and constructed value only the current portion of the foreign exchange losses resulting from foreign-currency denominated loans as part of the financial expenses). Therefore, we recalculated Shinho's financial expense to include only the current portion of the net foreign exchange gains and losses related to debt. As noted by Shinho, the Department's long-standing practice, codified at section 773(f)(1)(A) of the Act, is to rely on a respondent's normal books and records when they are kept in accordance with the GAAP of the exporting country and reasonably reflect the costs associated with the production and sale of the merchandise. However, in those instances where a company's normal accounting practices do not reasonably reflect the production costs, the Department will adjust the respondent's cost or use alternative calculation methodologies that more accurately reflect the actual costs incurred to produce the merchandise. In this case, even though the full amount of the exchange gain and loss related to foreign denominated debt is recognized in Shinho's audited financial statements, we disagree that such treatment should be used for submission purposes. The foreign exchange gains and losses on long-term debt reflect amounts related to both the current and long-term portion of the debt. As we are attempting to capture the company's cost of production in the current investigative period, we do not consider it appropriate to pick up that portion of the foreign exchange gain or loss which is associated with the long-term portion of the debt. This practice regarding foreign exchange gains and losses related to debt, which has evolved since Micron v. United States, attempts to smooth out the impact of sharp currency fluctuations on foreign-denominated long-term debt while recognizing that the settlement of the debt occurs over the life of the debt. See, Final Determination of Sales at Less Than Fair Value: Fresh Cut Roses from Ecuador, 60 FR 7019, 7039 (February 6, 1995). We do, however, agree with Shinho's statement that only the current portion of both foreign exchange gains and losses should be included in the financial expense rate calculation. All of Shinho's foreign exchange losses are related to current assets or liabilities. Therefore, we have only included the current portion. For the final determination, we have amortized the net foreign exchange gains over the maturities of the debt and included the amortized portion as an offset to interest expense in the financial expense rate calculation. RECOMMENDATION Based on our analysis of the comments received, we recommend adopting all of the above positions and adjusting all related margin calculations accordingly. If these recommendations are accepted, we will publish the final determination in the Federal Register. AGREE ____ DISAGREE ____ ______________________ Joseph A. Spetrini Acting Assistant Secretary for Import Administration ______________________ (Date) _______________________________________________________________________ footnotes: 1. On October 13, 2000, Shinho requested that a hearing be held, but withdrew its request on October 18, 2000. 2. Letter from King and Spalding to the Honorable Norman Y. Mineta, September 18, 2000, with reference to the Antidumping Investigation of Certain Expandable Polystyrene from South Korea/ Petitioners' Rebuttal of Shinho Petrochemicals Co., Ltd. Sales Verification Data. 3. Memorandum to the File from Charles Riggle and Dondi Ojeda, Verification of the Home Market and Comparison Market Sales Information in the Response of Shinho Petrochemical Corp. in the Antidumping Investigation of Expandable Polystyrene Resins from South Korea (September 26, 2000) ( Shinho Verification Report); Memorandum to the File from Charles Riggle and Dondi Ojeda, Verification of the Home Market and Comparison Market Sales Information in the Response of Cheil Industries, Inc. in the Antidumping Investigation of Expandable Polystyrene Resins from South Korea, (September 26, 2000) (Cheil Verification Report); and Memorandum to Gary Taverman from David Layton, Verification of the U.S. Sales Information in the Response of Cheil Industries, Inc. in the Antidumping Investigation of Expandable Polystyrene Resins from South Korea (October 5, 2000) (CEP Verification Report). 4. See Shinho Verification Report at 3-5, see also Cheil Verification Report at 3-6. 5. See CEP Verification Report at 4-7. See also Cheil Verification Report at 5-6. Our examination of the sales ledger in Korea for all exports enabled us to establish that Cheil makes all of its Mexican sales through SAI. 6. Id. 7. The petitioners cite to Notice of Preliminary Determination of Sales at Less than Fair Value and Postponement of Final Determination: Certain Expandable Polystrene Resins from the Republic of Korea, 65 FR 39352 (June 26, 2000) and petitioners' case brief exhibits 1 & 2. 8. The petitioners cite to Stainless Steel Sheet and Strip in Coils from Thailand, 64 FR 30592, 30603 (1999), where the Department employed shorter averaging periods because NV in the last two months of the POI differed significantly from NV earlier in the POI. 9. Notice of Preliminary Determination of Sales at Less Than Fair Value and Postponement of Final Determination: Certain Expandable Polystyrene Resins from the Republic of Korea, 65 FR 39351, 39354 (June 26, 2000) (Preliminary Determination). 10. Petitioners' case brief at 3. 11. See Memorandum from Richard W. Moreland to Troy H. Cribb, Issues and Decision Memorandum for the Antidumping Duty Administrative Review of Static Random Access Memory Semiconductors from Taiwan, October 1, 1997 through March 31, 1999, 65 FR 55005, (September 12, 2000) at Comment 13. 12. See Memorandum from Richard W. Moreland to Robert L. LaRussa, Issues and Decision Memorandum for the Antidumping Duty Administrative Review of Gray Portland Cement Clinker from Mexico, August 31, 1997 through July 31, 1999, 65 FR 13943, (March 15, 2000) at Comment 4. 13. See Preliminary Determination at 39353. 14. See Preliminary Determination at 39354. 15. See Preliminary Determination at 39353-39354. 16. Id. at 39354. 17. See NTN Bearings Corp., 131. 18. See Cheil Section B Response, March 15, 2000 at B-15 and Cheil Verification Report at 7. Cheil's "L/C customers" are other Korean firms which incorporate EPS in their products and subsequently export those products. Cheil provides these customers with certificates of import duties that Cheil paid for EPS inputs, and invoices an estimated amount for the anticipated duty drawback that the L/C customer will receive. The L/C customers subsequently pay Cheil for the actual amount of duty drawback for the EPS inputs it collects from the Korean government. 19. See Memorandum from Susan H. Kuhbach to Richard W. Moreland, Issues and Decision Memorandum for the Final Determination in the Anti-Dumping Investigation of Certain Polyester Staple Fiber from Korea,, 65 FR 16880 (March 30, 2000) at Comment 12. 20. Cheil cites e.g., Final Results of Antidumping Duty Administrative Review; Circular Welded Non-Alloy Steel Pipe from Korea, 63 FR 32833, 32844 (June 16, 1998); Final Determination of Sales at Less Than Fair Value: Oil Country Tubular Goods from Korea, 60 FR 33561, 33564 (June 28, 1995); Final Determination of Sales at Less Than Fair Value: Circular Welded Non-Alloy Steel Pipe from Korea, 57 FR 42942, 42945 (Sept. 17, 1992). 21. Laclede Steel Co. v. United States, 18 CIT 965, 972 (1994). 22. Id. 23. See Cheil Verification Report at 7. 24. See Import Administration Policy Bulletin 98.2 Imputed credit expenses and interest rates (February 23,1998); LMI-La Metalli Industriale, S.p.A. v United States, 912 F.2nd 455, 460061 (Fed. Cir. 1990). Also see, e.g. Final Determination of Sales at Less than Fair Value; Oil Country Tubular Goods from Austria, 60 FR 33551, 33555 (June 28, 1995). 25. In its case brief, Cheil identifies the sales by the actual name of the customer. Due to the proprietary nature of the customer names, in this public document, we will refer to them as the "customers in question" or "resellers." 26. AK Steel Corporation v. United States, 2000 App. LEXIS 22911 (Fed. Cir. Sept. 12, 2000) (AK Steel). 27. Id. at * 15. 28. Id. at * 16. 29. Cheil case brief at 8. 30. Id. 31. See Sales Verification Exhibit 2. 32. See Statement of Administrative Action (SAA), H.R. Doc. 103-316 (1994). 33. Cheil's case brief at 8. 34. Cheil Section A Response (March 3, 2000) at A-12. Please recall the discussion of the respondent arguments. It is the sales to the unaffiliated U.S. resellers previously identified as "commissionaires" that the petitioners want treated as a distinct EP averaging group if they are no longer classified as CEP sales. 35. Notice of Final Determination of Sales at Less Than Fair Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909, 8911 (February 23, 1998) (SRAMs). 36. Id. 37. Cheil Section A Response (March 3, 2000) at A-12. 38. Cheil Verification Report at 2; CEP Verification Report at 3. 39. Id. 40. Cheil Verification Report at 2. 41. Id. 42. SRAMS at 8911. 43. See Certain Steel Concrete Reinforcing Bars from Turkey; Final Results of Antidumping Duty Administrative Review and New Shipper Review, 64 Fed. Reg. 49150, 49155 (Sept. 10, 1999); Polyethylene Terephthalate Film, Sheet, and Strip From the Republic of Korea; Final Results of Antidumping Duty Administrative Review, 63 Fed. Reg. 37334, 37337 (July 10, 1998); Notice of Final Determination of Sales at Less Than Fair Value: Certain Pasta From Turkey, 61 Fed. Reg. 30309 (June 14, 1996) (Pasta from Turkey); Porcelain-on-Steel Cooking Ware From Mexico; Final Results of Antidumping Duty Administrative Review, 55 Fed. Reg. 21061, 21063 (May 22, 1990); Aimcor v. United States, 141 F.3d 1098, 1111 (Fed. Cir. 1998). 44. See Notice of Final Determination of Sales at Less than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate Products from Japan, 64 Fed. Reg. 73215, 73230 (Dec. 29, 1999). 45. See Notice of Final Determination of Sales at Less Than Fair Value: Large Newspaper Printing Presses and Components Thereof, Whether Assembled or Unassembled, From Japan, 61 Fed. Reg. 3819, 38161 (July 23, 1996).