65 FR 30068, May 10, 2000 A-201-504 AR 12/97-11/98 Public Document IA/I/2/KJ MEMORANDUM TO: Troy H. Cribb Acting Assistant Secretary for Import Administration FROM: Richard W. Moreland Deputy Assistant Secretary for Import Administration SUBJECT: Issues and Decision Memorandum for the Antidumping Duty Administrative Review on Porcelain-on-Steel Cookware from Mexico - December 1, 1997, through November 30, 1998 Summary We have analyzed the comments of the interested parties in the 1997- 1998 administrative review of the antidumping duty order covering porcelain-on-steel cookware from Mexico. As a result of our analysis of these comments, we have made changes in the margin calculations as discussed in the "Margin Calculations" section of this memorandum. We recommend that you approve the positions we have developed in the "Discussion of the Issues" section of this memorandum. Below is the complete list of the issues in this administrative review for which we received comments by parties: 1. Duty Reimbursement 2. Reclassification of All U.S. Sales as Constructed Export Price (CEP) Sales 3. Indirect Selling Expenses Incurred in Mexico 4. Calculation of Cinsa International Corporation's (CIC's) Indirect Selling Expenses/Bad Debt 5. Calculation of CEP Profit 6. CEP Offset Adjustment 7. Pre-Sale Warehousing Expenses 8. Model Matching Methodology Background On November 5, 1999, the Department of Commerce (the Department) published the preliminary results of the administrative review of the antidumping duty order on porcelain-on-steel cookware from Mexico. See Porcelain-on-Steel Cookware from Mexico: Preliminary Results of Antidumping Duty Administrative Review, 64 FR 60417 (Preliminary Results). The products covered by this order are porcelain-on-steel cookware, including tea kettles, which do not have self-contained heating elements. The period of review (POR) is December 1, 1997, through November 30, 1998. We invited parties to comment on our preliminary results of review. We held a public hearing on March 30, 2000. Margin Calculations We calculated CEP and normal value using the same methodology stated in the preliminary results, except as follows: 1. We found that CIC successfully rebutted the presumption of reimbursement with respect to 12th review entries. Accordingly, we did not make a deduction for antidumping duties in the CEP calculation. See Comment 1, below. 2. We reclassified all sales designated as export price sales in the preliminary results as CEP sales, in accordance with the decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) in AK Steel Corp. v. United States (AK Steel), Ct. No. 99-1296 (February 23, 2000) and made the necessary changes in programming arising out of this new classification. See Comment 2, below. We also made a CEP offset adjustment to normal value for all such sales comparisons. See Comment 6, below. 3. We deducted Mexican indirect selling expenses incurred by Cinsa in connection with the sale to the unaffiliated U.S. customer as part of the CEP calculation. See Comment 3, below. 4. We included the expenses in item three, above, in the total U.S. expenses used to calculate CEP profit. See Comment 5, below. 5. We treated CIC's bad debtors allowance as an expense and included it in the total indirect selling expenses for CIC. In our preliminary results, we considered bad debt expenses to be a "CEP-only" expense, i.e., only associated with the sales originally reported as CEP sales. For purposes of the final results, because the record does not indicate which sales were associated with these bad debt expenses, we have allocated them over all sales by CIC (both the U.S. sales originally reported as CEP sales and those reclassified as CEP sales pursuant to AK Steel). See Comment 4, below. 6. We treated the respondents' Mexican pre-sale warehousing expenses as indirect selling expenses, rather than factory overhead expenses. We included these expenses in the pool of indirect selling expenses and adjusted our CEP calculation, as appropriate. See Comment 7, below and Calculation Memo for the Final Results (Calculation Memo) dated May 3, 2000. 7. We modified the computer programs to resolve a programming problem which prevented matching costs to all sales. The programming changes streamlined the application of the Department's model matching methodology by linking the product matching characteristics and relevant difference-in-merchandise cost data to the respondents' product codes, without creating new control numbers, as was done in the preliminary margin calculation programs. See Comment 8, below. Discussion of the Issues Comment 1a: Reinterpretation of the Reimbursement Regulation The Respondents' Argument The respondents argue that the application of the presumption of continued reimbursement in the context of the 12th administrative review is directly contrary to past administrative practice, both in general and with respect to this case in particular, and is contrary to both judicial and NAFTA Panel precedent. The respondents further argue that the language of the "reimbursement" regulation is clear and unambiguous, stating that the Department will deduct from export price or constructed export price the amount of any antidumping duty which the "exporter or producer" either (1) paid directly to the U.S. Customs Service on behalf of the importer; or (2) reimbursed to the importer. The respondents claim that the Department verified that GIS- U.S. is not the "exporter or producer"of the merchandise in question and that the actual "exporters or producers" of the merchandise, Cinsa and ENASA, were not the source of GIS-U.S.'s April 1997 capital contribution to CIC, either directly or indirectly. The respondents state that even in the cases relied upon by the Department in the final results of the 11th review, the Department interpreted the regulation to apply only to parties expressly set forth within the governing regulation - the producer, exporter or reseller of the foreign merchandise. The respondents cite Outokumpu Copper Rolled Products, AB v. United States, 829 F. Supp. 1371 (CIT 1993) (Outokumpu) and Torrington Company v. United States, 881 F. Supp. 622 (CIT 1995) in support of their position that the reimbursement regulation is limited to payments by exporters or producers. Thus, according to the respondents, under the plain language of the regulation, no "reimbursement" of antidumping duties occurred in this review. In addition, the respondents contend that the Department is not legally permitted to expand the scope of the reimbursement regulation so as to include parties other than those specifically set forth in the regulation - the producers and exporters of the subject merchandise - because the Department's "reinterpretation" is directly contrary to the express language of the current regulation. The respondents argue that had the Department initially intended for its reimbursement regulation to apply to parties other than the exporter or producer of the subject merchandise so as to include additional parties acting "on behalf of" those exporters and producers, the Department could have done so. Moreover, the respondents claim that Hoogovens Staal, BV v. United States, 4 F. Supp.2d 1213 (CIT 1998) (Dutch Steel) supports the conclusion that the Department cannot by "reinterpretation" add additional words to the regulation which are contrary to its plain language. The respondents also claim that the Department's "new interpretation" of the reimbursement regulation covering parties in addition to the producer or exporter is inconsistent with subsection (2) of the regulation (i.e., 19 CFR 351.402(f)(2)) and the certifications that CIC continues to file with the U.S. Customs Service. Moreover, according to the respondents, it is the Department's well- established policy to recognize separate corporate identities, and the CIT in Outokumpu determined that no reimbursement occurred because the foreign producer did not directly pay duties on behalf of the importer or reimburse the importer for antidumping duties, despite the existence of financial transactions between the companies. Id., 829 F. Supp at 1384. Furthermore, the respondents argue that a valid amendment to an existing regulation must be done in accordance with the terms of the Administrative Procedures Act (APA) and that the Department should not create a presumption of reimbursement to apply in all future reviews based upon a transaction that was not considered reimbursement at the time it was made. The Petitioner's Argument The petitioner agrees with the Department's preliminary finding that Cinsa and ENASA reimbursed their affiliated U.S. importer for antidumping duties and argues that this finding should be affirmed for purposes of the final results. According to the petitioner, the undisputed facts demonstrate that: (1) the April 1997 payment to CIC was made, (2) the payment to CIC was made on behalf of the producers under review, and (3) CIC used the funds provided by GIS through GIS- U.S. to pay antidumping duty assessments. The petitioner also argues that the Department is entitled to interpret its regulations in the manner that best effectuates the regulatory purpose. The petitioner contends that the Department has a special interest in being able to apply its reimbursement regulation flexibly so that it can address the many different factual situations that arise. In addition, the petitioner argues that, contrary to the respondents' claim, the Department has not "collapsed" the respondents in this case. The Department's preliminary finding, according to the petitioner, is that GIS made the reimbursement payment on behalf of Cinsa and ENASA, as opposed to a collapsed entity making the reimbursement payment. Furthermore, the petitioner argues that the Department is entitled to change its interpretation of its regulation, provided that it articulates a reasonable explanation for the change, and applies its new interpretation of the reimbursement rule to the facts of this review. The petitioner believes that the Department's interpretation of the regulation in this review is an attempt to further develop an evolving policy with respect to reimbursement of antidumping duties between affiliated parties. Furthermore, the petitioner adds, Cinsa and ENASA could not have relied upon any prior interpretation of the regulation in making the April 1997 transaction, because the transaction itself occurred prior to the final results in the 9th and 10th reviews of the underlying order. With regard to the alleged violation of the APA, the petitioner claims that the interpretation as adopted in the Department's preliminary results merely interprets the regulation. Therefore, it involves a general statement of policy or an interpretive rule, neither of which is subject to the notice and comment requirements of the APA. The petitioner also contends that there is nothing in the language of the regulation that limits its coverage to specific types of reimbursement. Therefore, the petitioner believes that the Department is entirely within its authority in applying the reimbursement regulation to a reimbursement payment made to the importer by one affiliate on behalf of another affiliate. In addition, the petitioner claims that the Department is entitled to interpret the language of the certification requirement in a manner consistent with its interpretation of the reimbursement regulation as a whole. DOC Position We agree with the petitioner that the Department reasonably interpreted its regulation to determine that the April 1997 transfer constituted reimbursement of antidumping duties within the meaning of 19 CFR 351.402(f). The Department's prior practice (e.g., in the 9th and 10th reviews of the Mexican cookware order) of interpreting its reimbursement regulation to apply only when the reimbursement payment was made directly by an "exporter or producer" does not prevent it from adopting a broader interpretation of that regulation for purposes of this and future administrative proceedings. It is well-settled law that an agency's construction of its own regulation is entitled to substantial deference. See Lyng v. Payne, 476 U.S. 926, 939 (1986). Furthermore, the Court of International Trade (CIT) has held that the Department is not required to follow its prior interpretation of the reimbursement regulation if new arguments support a different conclusion. Dutch Steel, 4 F. Supp.2d at 1217. In this respect, the Department may depart from a prior position if it "articulates a reasoned basis" for doing so. Id. (upholding the Department's decision to apply the reimbursement regulation to related parties). The Department reasonably determined, beginning with the 11th review,(1) that when GIS, the ultimate parent of both CIC and Cinsa (through its wholly-owned subsidiary GIS-U.S.), provided funds to CIC for payment of antidumping duties due on entries of subject merchandise produced by Cinsa, GIS could be deemed to act on behalf of the affiliated producer/exporters, and that the reimbursement of the 5th and 7th review entries could be attributed to Cinsa and ENASA. GIS regularly manages funds on behalf of its various subsidiaries, including Cinsa and ENASA. In making the transfer in question, GIS acted for the benefit of Cinsa and ENASA and their U.S. importation arm, CIC. Therefore, the April 1997 reimbursement can be said to constitute reimbursement by producer/exporters, and thus to constitute reimbursement within the meaning of the regulation. This broader interpretation of the regulation also is appropriate because such an interpretation better effectuates the regulatory purpose by allowing the Department to compensate for the effect of an express reimbursement of antidumping duties on the producer/exporter's U.S. price. Reimbursement of antidumping duties relieves the importer of its obligation to pay antidumping duties, and thereby undermines the remedial effect of the antidumping law and frustrates the purpose and administration of that law. See Dutch Steel 3rd Review, 63 FR at 13204, 13414. Therefore, the purpose of the regulation is to prevent such frustration of the antidumping duty law by curtailing the incentive for reimbursement. Prior to the 11th review, the Department had concerns with respect to reimbursement by parties affiliated with exporters and producers. The arguments proposed to resolve this concern, however, conflicted with other important Department policies. Because the current reading, which limits the application of the reimbursement regulation to situations in which there is an express act of reimbursement by or on behalf of the producer or the exporter, does not conflict with other statutory and regulatory requirements, it "is entirely consonant with what Congress intended." See Toyota Motor Sales v. United States, 585 F. Supp. 649, 661 (CIT 1984). Furthermore, with regard to the respondents' argument that the language of the reimbursement regulation is inconsistent with the certifications that CIC files with the U.S. Customs Service, we agree with the petitioner that the language of the certification requirement does not exclude indirect reimbursements of the importer by the exporter or producer. Further, attributing the April 1997 transfer to Cinsa and ENASA when GIS acted "on behalf of" those firms does not conflict with the Department's practice of recognizing the separate corporate identities of affiliated companies. The respondents' argument is misplaced because it presumes that the Department has adopted a rationale for a finding of reimbursement which the Department expressly rejected, namely that any action by one member of the corporate family can be considered an action of any other member of that corporate family. In fact, the Department recognizes that GIS has a legitimate corporate existence separate from that of Cinsa and ENASA. Rather, GIS's action with respect to the April 1997 cash transfer can be attributed to Cinsa and ENASA because it falls within the limited number of specific situations in which GIS acts on behalf of those producing subsidiaries. We also disagree with the respondents' claim that the Department's broader reading of the regulation constitutes the promulgation of a new substantive rule, such that it cannot be undertaken without satisfying the notice and comment requirements of the APA. Only rules requiring "mechanical application of fixed standards" require notice and comment. See Zenith Elec. Corp. v. United States, 755 F. Supp. 397, 412 (CIT 1990), aff'd, 988 F.2d 1573 (Fed. Cir. 1993). In contrast, because the Department has merely reinterpreted the regulation, not "altered" or "amended" it, there is no requirement that the Department comply with the terms of the APA before doing so. In this case, the Department has not made a hard and fast rule that any payments by an affiliate of the producer to an importer will constitute reimbursement. It has merely adopted a new policy of interpreting the regulation in such a way as to permit it to attribute reimbursement to the producer when the reimbursement is made on behalf of that producer, and has found that, on the facts of this case, those criteria were met. An "interpretive rule, " i.e., a clarification or explanation of an existing regulation, is permitted to evolve over time, without the need for formal notice and comment procedures, as long as the Department explains the reasons for its changes in practice. Furthermore, we note that the respondents were accorded, and took advantage of, opportunities to comment on this policy before it was finalized in the 11th review, and again during this 12th review. Finally, the Department also disagrees with the respondents' claim that application of the new policy in this review constitutes "retroactive" application of the reimbursement regulation and will thus violate the APA. "[T]he general principle is that when, as an incident of its adjudicatory function, an agency interprets a statute, it may apply that new interpretation in the proceeding before it." See Clark-Cowlitz Joint Operating Agency v. Federal Energy Regulatory Commission, 826 F.2d 1074, 1081 (D.C. Cir. 1987), cert. denied, 485 U.S. 913 (1988). The same is true of applying a new interpretation of a regulation. Thus, the Department does not apply its new reading "retroactively" when it applies it in this final determination after adopting the new interpretation in the prior review. Instead, it seeks to determine only whether the April 1997 transaction should lead to increased antidumping duties as to entries made during this 12th POR. This creates no exception for "manifest injustice" as to the respondents (see id.) for two reasons. First, Commerce has no long-standing practice regarding reimbursement of antidumping duties in the context of affiliated-party transactions. Commerce first changed its policy to apply the reimbursement regulation to such transactions in Color Television Receivers From Korea: Final Results of Antidumping Duty Administrative Review, 61 FR 4408, 4410-11 (February 6, 1996), and its scrutiny of the role of affiliated parties in reimbursement situations has been evolving ever since. Second, although the Department determined not to apply the reimbursement regulation in the final determinations of the 9th and 10th reviews of this order, Cinsa and ENASA could not have relied upon those findings in making the transactions at issue because both of those determinations were made subsequent to the April 1997 transfer. Comment 1b: The Respondents' Rebuttal of the Reimbursement Presumption The Respondents' Argument The respondents argue, furthermore, that the record of this review includes evidence sufficient to rebut any presumption that reimbursement will occur when the 12th review entries are liquidated. The respondents claim that the administrative record indicates that (1) CIC paid its full antidumping duty deposit liability during the 12th review period, (2) there was no antidumping duty liability that became due during the 12th review period, (3) CIC did not receive any reimbursement during the 12th review period, and (4) on January 29, 1999, CIC returned the April 1997 increase in capital to GIS-U.S. Furthermore, according to the respondents, by using monies loaned by an independent commercial bank rather than monies from the foreign producer to refund the April 1997 payment, CIC's corrective action goes beyond the actions successfully taken by the U.S. importer in Dutch Steel 3rd Review to rebut presumptions of reimbursement in the subsequent review period. The respondents note that The Hoogovens Test provides two alternatives for rebutting the presumption of reimbursement. Under the first scenario, a respondent must demonstrate that it paid all antidumping duties assessed during the POR without reimbursement. Under the second scenario, a respondent must demonstrate that there are changed circumstances sufficient to obviate the need for reimbursement. According to the respondents, with no antidumping duty assessments due during the 12th review period, there was no need for reimbursement during that period. Therefore, they argue, they have effectively rebutted the presumption of reimbursement under the first scenario. The respondents contend that the presumption of reimbursement also has been rebutted under the second scenario, because the cash deposits already paid by CIC for 12th review entries are greater than the actual antidumping duty liability for 12th review entries calculated by the Department in its preliminary results. The Petitioner's Argument The petitioner argues that, contrary to Cinsa's and ENASA's assertions, the respondents have failed to rebut the presumption that CIC will continue to rely on reimbursements from its Mexican affiliates in order to meet its obligations to pay future antidumping liabilities. With regard to the first alternative under the Department's test, the petitioner claims that: (1) there is no evidence that CIC did not use the funds transferred to it in April 1997 to pay antidumping obligations that came due during the 12th review period; (2) the record demonstrates that Cinsa and ENASA are providing cash infusions to CIC by indirect means; (3) the fact that there were no antidumping duty assessments during the 12th review period is not dispositive of whether CIC has the ability to satisfy its antidumping obligations without assistance from its Mexican affiliates; and (4) the fact that GIS made no additional capital contributions to CIC on Cinsa's and ENASA's behalf during the 12th review period is not dispositive of whether CIC is able to satisfy its dumping obligations without assistance. With respect to the second alternative under the Hoogovens Test, the petitioner also believes that the respondents have not attempted to establish that there are "changed circumstances" sufficient to rebut the presumption that reimbursement will again be necessary when 12th review entries are liquidated. First, according to the petitioner, the value of the cash deposits reported by the respondents is based on the amount paid during the calendar year 1998, as opposed to the 12th POR. Thus, the reported amount is higher than the actual amount of cash deposits posted on 12th POR entries, because a higher cash deposit rate was in effect during December 1998 (included in the reported period but not in the 12th POR) than for December 1997 (part of the 12th POR). Second, the petitioner argues it is impossible to determine at this time the amount of CIC's assessment liability for 12th review entries. In addition, the petitioner contends that the Department found that the presumption of reimbursement had been rebutted in Dutch Steel 3rd Review based on a number of factors that are absent from the instant case. In conclusion, the petitioner maintains that, if the Department determines that some assumption about the likely final assessment rate is necessary, it should rely on the assessment rate from the last completed review, using both the actual rate and the rate that would have been applied had there been no finding of reimbursement. DOC Position We find that Cinsa and ENASA have rebutted the presumption that reimbursement will occur when 12th review entries are liquidated. As explained above, the respondents may rebut a presumption of reimbursement in two ways. Under the first prong of The Hoogovens Test, a respondent must demonstrate that it paid all antidumping duties assessed on entries liquidated during that POR without reimbursement by the exporter/producer. In the alternative, the respondents may rebut the presumption under the second prong of the test by demonstrating there are changed circumstances sufficient to obviate the need for reimbursement of antidumping duties to be assessed on the entries under review. We disagree with the respondents that they have rebutted the presumption based on the first alternative. Although CIC posted antidumping duty deposits during the 12th review period, posting of antidumping duty deposits does not in and of itself constitute "payment of antidumping duties". See Outukumpu, 829 F. Supp. at 1384. Because no entries were liquidated during the 12th review period, no duties were assessed, and thus CIC did not pay any actual duties during the instant review period. Therefore, the respondents did not have the opportunity to rebut the presumption that CIC would eventually be reimbursed for 12th review entries based on first prong of the above-mentioned test (financial ability to pay duties during the current POR). Therefore, in this case, the second prong of the test (changed circumstances sufficient to obviate the need for reimbursement of duties) is the more appropriate measure of whether the respondents have rebutted the presumption of reimbursement as to 12th review entries. As the petitioner correctly points out, the amount of cash deposits posted on 12th review entries is actually lower than originally reported by the respondents in their income statement because the reported amount corresponds to the calendar year (January-December 1998), as opposed to the review period (December 1997-November 1998). The cash deposit rate in effect in December 1997 was lower than the rate in effect in December 1998.(2) We corrected the cash deposit information for the POR, as reported in the respondents' sales listings. Although Cinsa provided loans to CIC to cover cash deposits in the past, we have previously verified that these loans have been and continue to be repaid. See page 28 of the Memorandum For The File dated November 12, 1997 (Verification of Questionnaire Responses of Cinsa, S.A. de C.V. (Cinsa) and Esmaltaciones de Norte America S.A. de C.V. (ENASA) in the Antidumping Duty Review of Porcelain-on-Steel Cookware from Mexico, 10th review) (attached). Also, CIC's projections show that repayment of these loans will be completed by 2001. Because verified information on 12th review duties is available for purposes of the final results of this review, we have not adopted the petitioner's suggestion that we should use 11th review data for this purpose. Therefore, we anticipate that cash deposits previously posted by CIC will be more than sufficient to pay the antidumping duties expected to be assessed when 12th review entries are liquidated, such that it will not be necessary for CIC's Mexican affiliates to reimburse it for these duties. CIC also has other sources of funds upon which it can rely. CIC's income statements for 1998 and 1999 showed actual profits. CIC also expects profits on sales of ceramic dinnerware, which CIC is expected to begin selling in 2000 due to the recent North American market restructuring within the GIS group, and the consolidation of U.S. sales by product line within the group. However, even if we do not include projected income from ceramic dinnerware sales, CIC's projected income for 2001 is sufficient to cover anticipated duties (even without taking duty deposits already made on 12th review entries into consideration). Furthermore, as of September 1, 1999, CIC ceased to be the importer of record and will no longer be subject to the cash flow burden of posting cash deposits when the 12th review entries are liquidated. In addition, we confirmed at verification that in January 1999, CIC repaid the April 1997 capital infusion. These funds were expressly for duties assessed on 5th and 7th review entries which were liquidated during the 11th review period. Moreover, we verified that CIC did not receive any additional capital contributions during the 12th administrative review period and through December 1999. With regard to the petitioner's argument that Cinsa and ENASA are providing cash infusions to CIC by indirect means, we find that the revision of the terms under which CIC pays Cinsa (for Cinsa and ENASA merchandise) so that they are similar to the payment terms CIC extends to its own U.S. customers does not constitute the extension of indirect loans to CIC. Previously, CIC was extending its customers more generous terms than Cinsa was extending to it. To correct this situation, CIC revised its payment terms with Cinsa so that its accounts payable/accounts receivable balance was brought in line with its cost of goods to sales ratio. See the respondents' October 29,1999, submission at page 6. The fact that CIC has negotiated payment terms with Cinsa and ENASA that are now similar to the terms that it extends to its own customers does not demonstrate that Cinsa and ENASA are providing cash assistance to CIC by an indirect means for purposes of reimbursement. Because much of this information is business proprietary, it is discussed more fully in the May 1, 2000, Memorandum to Richard W. Moreland, Deputy Assistant Secretary for Import Administration, from the Team regarding Reimbursement. Finally, the above analysis is consistent with the CIT's decision in Hoogovens Staal B.V. v. United States, 86 F. Supp.2d 1317 (CIT 2000), which upheld the Department's decision that Hoogovens had rebutted the presumption of reimbursement as to entries in the current review period based on corporate restructuring. As in the instant case, the Department determined that respondent rebutted the presumption of reimbursement by demonstrating (1) that the importer is solely responsible for the payment of duties, and (2) that the importer now has the financial ability to generate sufficient income to pay antidumping duties to be assessed. The above analysis indicates that CIC will be in a position to cover its antidumping duty liability for 12th review entries when they become due. Accordingly, for purposes of the final results of the 12th review, we find that CIC has successfully rebutted the presumption of reimbursement with respect to 12th review entries. Comment 2: Reclassification of All U.S. Sales as CEP Sales The petitioner argues that the Department should reclassify all of the respondents' reported export price sales as CEP sales. The petitioner points out that on February 23, 2000, the CAFC, in AK Steel, rejected the Department's "indirect export price" methodology and held that a U.S. sale that occurs in the United States and is made by an entity located in the United States that is affiliated with the foreign producer must be classified as a CEP sale. According to the petitioner, because all U.S. sales reported in this review were made in the United States by Cinsa and ENASA's U.S. affiliate, CIC, the CAFC's decision in AK Steel requires that all U.S. sales be classified as CEP sales. Accordingly, for purposes of the final results, the petitioner claims that the Department should reclassify as CEP sales all sales reported as export price sales. The respondents concur that, on the basis of the CAFC's decision in AK Steel, the Department should classify all sales in this review as CEP transactions. In addition, the respondents claim that the Department must recalculate the CIC indirect selling expenses to eliminate the allocation of indirect selling expenses between export price and CEP transactions. Finally, according to the respondents, the CEP offset must be granted for all CEP sales. See also Comment 6, below. DOC Position: We agree with both parties that all sales reported by the respondents as export price sales should be reclassified as CEP transactions. With respect to these sales, CIC purchased the merchandise from Cinsa (no sales of ENASA merchandise were reported as export price sales in this POR), i.e., took legal title, and then resold the merchandise and arranged for its delivery to an unaffiliated customer in the United States. Therefore, all of Cinsa's sales originally reported as export price sales were, under the terms of the AK Steel decision, made in the United States by Cinsa's U.S. affiliate, CIC. As a result, in accordance with AK Steel, we have reclassified as CEP sales all sales originally reported as export price sales for purposes of the final results. However, we disagree with the respondents that we should recalculate CIC's indirect selling expenses to eliminate the allocation of these expenses between the sales originally categorized as indirect export price sales and those originally categorized as CEP sales. Although we now consider sales originally reported as export price sales to be CEP transactions based on the CAFC's decision in AK Steel, the expenses incurred in connection with the sales to unaffiliated customers arranged by the Saltillo office of Cinsa (the sales originally reported as export price sales, also known as the "FOB Laredo" sales) and the expenses incurred in connection with the sales arranged by the San Antonio office of CIC continue to be different. Certain expenses incurred by CIC were not associated with the FOB Laredo sales, for which most arrangements were made by the Saltillo office. Accordingly, we have continued to allocate CIC's indirect selling expenses between these sales and the sales which were categorized as CEP sales in the preliminary results. For the reasons explained in detail in Comment 6, below, we have granted a CEP offset to normal value for all U.S. sales comparisons. Comment 3: Indirect Selling Expenses Incurred in Mexico The petitioner argues that the Department's failure to deduct indirect selling expenses incurred in Mexico in support of sales of the subject merchandise to the United States in calculating CEP is directly contrary to both the plain language of the statute and the congressional intent as set forth in the legislative history. The petitioner claims that by specifically using the word "any" in section 772(d)(1)(D) of the statute, Congress expressly required the Department to deduct from the CEP starting price all expenses incurred by the exporter that are reasonably attributable to CEP sales, regardless of where the expenses were incurred or whether the expenses related to the sale to the affiliated U.S. importer or the sale to the first unaffiliated customer in the United States. The petitioner cites to cases interpreting the Fair Labor Standards Act and the Americans with Disabilities Act and Rehabilitation Act of 1973 in support of its position. The petitioner also argues that the CIT recently agreed that the plain language of the statute requires the Department, in calculating CEP, to deduct all expenses that relate to U.S. sales, relying upon Mitsubishi Heavy Indus. Co., Ltd. v. United States ("Mitsubishi I"), 15 F. Supp. 2d 807, 818 (CIT 1998). Thus, the petitioner contends, the Mitsubishi I opinion requires the Department to deduct all indirect selling expenses associated with Cinsa's and ENASA's sales to the United States, including those incurred in Mexico on sales to their affiliated U.S. importer, CIC. The petitioner contends that, because the Congressional intent is clear from the plain language of the statute, it is not necessary to consult the legislative history to interpret the statute on this question. The petitioner also asserts that nothing in the House or Senate reports discussing the Uruguay Round Agreements Act (URAA) amendments to section 772(d) indicates any intent to limit the deduction of indirect selling expenses to expenses incurred in the United States or to expenses relating to sales by affiliated importers to unaffiliated purchasers. Furthermore, according to the petitioner, the legislative history confirms that Congress specifically intended no change in the types of expenses that the Department deducted from exporter's sales price under the prior law, including indirect selling expenses related to U.S. sales but incurred in the exporting country. Accordingly, the petitioner claims that, for purposes of the final results, the Department should recalculate the dumping margin after deducting indirect selling expenses and inventory carrying costs incurred in Mexico by the respondents in the calculation of CEP. Finally, the petitioner argues, in the alternative, that even if the statute does not require the Department to deduct all indirect selling expenses incurred in Mexico with respect to exports to the United States-i.e., those expenses incurred with respect to sales both to affiliated and to unaffiliated customers-the CIT's decision in Micron Technology, Inc. v. United States ("Micron"), 40 F. Supp. 2d 481, 484 n.6 (CIT 1999)(citing Mitsubishi I) requires the Department to deduct at least the indirect selling expenses incurred in the country of exportation that bear a relationship to sales to unaffiliated parties in the United States. The petitioner claims that, in this review, certain expenses reported in the DINDIRSU field were incurred by Cinsa and ENASA with respect to sales to unaffiliated U.S. customers which were classified as export price sales in the preliminary determination. These expenses, they argue, must be deducted from CEP when these sales are reclassified as CEP sales. The respondents argue that the Department was correct in not deducting indirect selling expenses incurred in Mexico from CEP in the preliminary results. The respondents contend that the petitioner's arguments are contrary to the express terms of the regulations which require the Department to deduct from CEP only those expenses associated with selling activities in the United States. In addition, the respondents claim that, in the preamble to the revised regulations, the Department specifically rejected arguments identical to the petitioner's contentions that the Department's regulation was inconsistent with the statute. Finally, the respondents point out that the Department has rejected the petitioner's arguments in previous administrative reviews of this order. Accordingly, the respondents contend that the Department should continue its practice of not deducting Mexican indirect selling expenses incurred by the respondents on their sales to CIC in the calculation of CEP. DOC Position: With regard to indirect selling expenses incurred in Mexico in support of Cinsa's and ENASA's sales to CIC, we agree with the respondents that such expenses do not relate to economic activity in the United States. Therefore, we have continued not to deduct these expenses from the starting price in calculating CEP. However, we also agree with the petitioner that the indirect selling expenses the Mexican producers incurred in dealing with unaffiliated customers in the United States to directly arrange the sales that were classified as export price sales in the preliminary results were related to economic activity in the United States. Therefore, in the final results, we have deducted these expenses from the starting prices of the affected sales, which are now classified as CEP sales. The Department's current practice, as indicated by the preamble to the current regulations, is to deduct indirect selling expenses incurred in the home market in making the CEP calculation only if they relate to sales to the unaffiliated purchaser in the United States. We do not deduct, in the CEP calculation, indirect selling expenses incurred in the home market relating to the sale to the affiliated purchaser. The CIT has twice held that the statute is silent as to whether indirect selling expenses incurred outside the United States should be deducted from CEP. Micron, 40 F. Supp. 2d at 485; Timken Co. v. United States ("Timken"), 16 F. Supp. 2d 1102, 1106 (CIT 1998). Thus, the petitioner's claim that the plain language of the statute dictates the result it seeks is without merit. Although the statute does not expressly state whether its terms apply to indirect selling expenses associated both with sales to U.S. affiliates and with the subsequent sales by U.S. affiliates to unaffiliated buyers, the overall statutory scheme and the legislative history of the URAA, including the Statement of Administrative Action (SAA), guide the interpretation of the provision at issue as applying only to the sale in the United States, i.e., the sale to the unaffiliated buyer. After the post-URAA statute, the Department no longer deducts selling expenses associated with the foreign producer's sale to the affiliate from the U.S. price when it calculates the margin based on CEP. The SAA describes how Congress intended for the Department to treat these expenses under the post- URAA statute, clearly stating that, in calculating the CEP, the Department is to deduct from the starting price only expenses "associated with economic activities occurring in the United States." SAA at 823. The remedy sought by the petitioner would eliminate the equilibrium embodied in the post-URAA statute by reducing the U.S. price without a comparable reduction to the home market price. See Antidumping Duties: Countervailing Duties: Final Rule, 62 FR 27296, 27351-27352 (preamble to 19 CFR § 351.402). The Department's position in this respect has been upheld not only in the cases cited above, but also in the NAFTA panel's opinion as to a prior segment of this proceeding. In the Matter of: Porcelain-on-Steel Cookware from Mexico, Final Results of the Ninth Antidumping Duty Administrative Review ("9th Review NAFTA Decision"), Secretariat File No. USA-97- 1904-07 (April 30, 1999), at 20. Furthermore, the petitioner's reliance on Mitsubishi I is misplaced. While that opinion does require the Department, in calculating CEP, to deduct the indirect selling expenses that relate to U.S. sales, that case also clarified that those expenses were only the expenses "associated with United States economic activity." See Mitsubishi I, 15 F. Supp. 2d at 818-19; see also, Mitsubishi Heavy Indus. Co., Ltd. v. United States ("Mitsubishi II"), 54 F. Supp. 2d 1183, 1187 (CIT 1999) (upholding the Department's remand excluding those home market indirect selling expenses that were not associated with economic activities occurring in the United States). Thus, the opinion in Mitsubishi I does not require the Department to deduct those Mexican indirect selling expenses associated with Cinsa and ENASA's sales to their affiliated U.S. importer, CIC. Accordingly, because Cinsa and ENASA reported that certain indirect selling expenses incurred in Mexico on the original CEP sales are associated only with Cinsa and ENASA's sales to CIC, these expenses are not associated with selling activities in the United States, and we have continued to exclude these expenses from the calculation of CEP. We have, however, deducted selling expenses incurred by Cinsa in connection with the sale to the unaffiliated U.S. customer as part of the CEP calculation. The respondents' argument that "indirect selling expenses incurred in Mexico should not be attributed to U.S. sales because they do not relate to economic activity in the United States" is based on a flawed premise. Although the respondents are correct that, in calculating the CEP, the Department will only deduct expenses that relate to "economic activity in the United States," such activity is defined as activity in support of the sale to the unaffiliated U.S. customer, not by the location in which the expenses are incurred or paid. The CIT has held that "Commerce has the authority to deduct indirect selling expenses that are associated with the sales of exports in the United States from CEP, whether incurred in the United States or the home market." Mitsubishi II, 54 F. Supp. 2d at 1187 (citing Mitsubishi I, 15 F. Supp. 2d at 818). Thus, 19 CFR § 351.402(b) provides that, in establishing constructed export price, "the Secretary will make adjustments for expenses associated with commercial activities in the United States that relate to the sale to an unaffiliated purchaser, no matter where or when paid." See also the preamble to that regulation (stating that the final regulation distinguishes between "selling expenses incurred on the sale to the unaffiliated customer, which may be deducted under 772(d)(1) and those associated with the sale to the affiliated customer in the United States, which may not)". 62 FR at 27351. In a post-hearing submission requested by the Department and dated April 3, 2000, the respondents cite Final Results of Antidumping Duty Administrative Review and New Shipper Review: Certain Steel Concrete Reinforcing Bars from Turkey, 64 FR 49150 (September 10, 1999), in support of their position. However, this administrative case does not support the respondents' claim that 19 CFR § 351.402(b) applies only to situations in which a foreign company pays for expenses associated with selling functions that take place in the United States. The Department declined to deduct certain Turkish indirect selling expenses in that case because they related to the sale to the affiliated purchaser, not because they were incurred in Turkey. See 64 FR at 49154. In the instant review, indirect selling expenses incurred in Mexico in support of sales of subject merchandise to the United States (e.g., expenses related to order solicitation) were not reported for the sales originally reported as indirect export price sales because the statute does not authorize the deduction of such expenses from the export price. However, subsequent to the filing of the respondents' questionnaire responses, the CAFC rejected the Department's "indirect export price" methodology and held that a U.S. sale that occurs in the United States and is made by an entity located in the United States that is affiliated with the foreign producer must be classified as a CEP sale. See AK Steel, at 21 and Comment 2, above, for further discussion. Because information regarding indirect selling expenses incurred in Mexico was not reported for these former export price sales, and the Department had no reason to request additional information regarding these expenses when it issued its supplemental questionnaire, there is no information on the record of this review quantifying the indirect selling expenses incurred in Mexico in support of the former export prices sales of subject merchandise to the United States. Therefore, as neutral facts available, in accordance with section 776(a)(1) of the Act, we have applied the ratio reported for the indirect selling expenses incurred in Mexico on sales to CIC for the original CEP sales to the gross prices of the former export price sales as a reasonable surrogate for indirect selling expenses incurred in Mexico on sales to unaffiliated U.S. customers for the former export price sales and have adjusted our CEP calculations accordingly. See Calculation Memo. Comment 4: Calculation of CIC's Indirect Selling Expenses/Bad Debt The respondents argue that the Department overstated CIC's indirect selling expenses by improperly adding CIC's bad debt reserves to reported indirect selling expenses. The respondents contend that the amounts reported as "bad debtors allowances" were not amounts expensed during the POR to cover written-off bad debts attributable to sales of the subject merchandise, but are merely accounts to provide for the recognition of bad debt expenses should they arise in the future. The respondents claim that there is no information in the record to indicate that CIC expensed the bad debt reserve. The respondents further argue that, under the Department's longstanding administrative practice, adjustment to foreign market value or United States price will be made to account for bad debt reserves only in cases in which the bad debt reserves were expensed to write off a previously reported sale, citing Antifriction Bearings (Other Than Tapered Roller Bearings) from France, Germany, Italy, Japan, Romania, Sweden and the United Kingdom; Final Results of Antidumping Duty Administrative Review, 64 FR 35590, 35607, at Comment 5 (July 1, 1999) and CEMEX v. United States, 19 CIT 587, 595 (1995), among other cases, to support their position. Accordingly, for purposes of the final results, the respondents argue that the Department should exclude amounts included in CIC's "bad debtors allowance" account from the pool of indirect selling expenses to be deducted from CEP. Finally, the respondents maintain that, in the event that the Department includes the bad debt allowance in the calculation of the indirect selling expense ratio, the amounts shown for the period December 1997 - July 1998 should be allocated across both the sales originally categorized as export price sales and those originally categorized as CEP sales, because bad debt expense may be attributable to either CEP or export price sales. The petitioner argues that the record clearly shows that CIC's bad debtors allowances flowed through to its financial statement, i.e., they were expensed. According to the petitioner, if CIC's bad debtors allowances account were indeed a reserve account, it would not flow through to CIC's income statement, but would appear only on CIC's balance sheet. The petitioner argues that, during the POR, CIC did incur an expense for bad debt, as evidenced by the flow of this account through its income statement and its effect on CIC's reported net income. Accordingly, the petitioner claims that because the respondents have not established that this account is a reserve account, the record supports the Department's preliminary treatment of this account as an indirect selling expense. The petitioner did not address the bad debt expense allocation issue. DOC Position: The parties appear to be in agreement that expensed bad debt is a selling expense, whereas a non-expensed reserve account for bad debt is not such an expense. Because we agree, the issue in this case turns on whether the amount in question was expensed or held in reserve during the POR. We agree with the petitioner that the record shows that CIC expensed its bad debtors allowances account. CIC's 1998 summary of expenses indicates that the net bad debtors allowances account for 1998 was included in the total variable selling expenses, which are included in the 1998 income statement. If a bad debtors allowances account is not used, it would not flow through to the income statement. However, in the instant review, the fact that an amount appears in the variable selling expense listing and, in turn, on the income statement, indicates that certain accounts have been deemed uncollectable and, therefore, expensed. The fact that these uncollectable amounts may not yet be tied to specific customers does not change the fact that the amounts were expensed during the POR. Accordingly, for purposes of the final results, we have continued to treat bad debtors allowance as an expense and have included it in the total indirect selling expenses incurred by CIC. Because the record does not indicate which sales were associated with these bad debt expenses, we have allocated them over all sales by CIC, i.e., all U.S. sales made during the POR. See Calculation Memo. Comment 5: Calculation of CEP Profit The petitioner argues that, because the Department allegedly erred in its calculation of CEP by failing to deduct all selling expenses as required by the statute, the Department also failed to include all selling expenses in "total United States expenses" and, therefore, incorrectly calculated CEP profit. According to the petitioner, the statute explicitly requires the Department to include in "total United States expenses" all expenses referred to in subsection (d)(1) and (2) of section 772. Accordingly, for the final results, the petitioner argues the Department should recalculate the dumping margins for Cinsa and ENASA after including indirect selling expenses and inventory carrying costs incurred in Mexico in "total United States expenses" for purposes of the CEP profit calculation. The petitioner further argues that the Department improperly included movement expenses in "total expenses" for purposes of the CEP profit calculation, citing U.S. Steel Group v. United States, 15 F. Supp. 2d 892 (CIT 1998) (U.S. Steel Group). According to the petitioner, in U.S. Steel Group the Court found that the limitation of "total expenses" to expenses relating to "production and sale" of the merchandise was intended to include the same types of expenses that are included in the calculation of total U.S. expenses, all of which relate either to production or sale of the merchandise, excluding movement expenses. Therefore, in the final results, the petitioner claims the Department should modify its calculation of CEP profit so that it conforms with the opinion of the CIT in U.S. Steel Group. Finally, the petitioner requests that the Department confirm that certain additional expenses incurred by CIC in San Antonio (e.g., bad debt, depreciation, and repacking expenses) are included in "total United States expenses" for purposes of calculating the CEP profit ratio. The respondents claim that the petitioner's argument that the Department should include foreign indirect selling and inventory carrying cost expenses in "total United States expenses" is contrary to the Department's consistent practice, and is the reason why the petitioner failed to cite to a single determination supporting its argument. The respondents point out that this same argument was raised by the petitioner and rejected by the Department in the context of the eleventh review of this order. In addition, the respondents mention that the NAFTA panel opinion in the 9th review of this order rejected similar arguments and affirmed the Department's calculation of CEP profit without the additional deductions proposed by the petitioner. See 9th Review NAFTA Decision at 6. Accordingly, the respondents argue that the Department should continue not to include Mexican indirect selling expenses incurred by the respondents on sales to CIC in the pool of U.S. selling expenses used in the calculation of CEP profit. Finally, the respondents claim that the petitioner's argument that the Department improperly failed to deduct movement expenses for purposes of calculating CEP profit is contrary to the statute as well as the Department's long-standing administrative practice. The respondents argue that the petitioner's reliance on U.S. Steel Group is misplaced because the decision is not final and, as a matter of judicial review, the decision failed to give the deference required to the Department's statutory interpretation of the law that it is charged to administer. Therefore, the respondents argue that the Department's calculation of CEP profit was consistent with the statute and the Department's long-standing administrative practice and should therefore be applied without change in the final results. DOC Position: With respect to the sales originally reported as CEP sales, we agree with the respondents that "total United States expenses," for purposes of calculating CEP profit, should not include expenses incurred by the foreign producers in making the sale to their U.S. affiliate. We also agree with the respondents that "total expenses" should include movement expenses. However, with respect to the former indirect export price sales, we have included the selling expenses incurred by Cinsa in connection with the sale to the unaffiliated U.S. customer in "total United States expenses." See Comment 3, above. With respect to the original CEP sales, in calculating the amount of profit to deduct from the starting price in performing the CEP calculation, we properly deducted the amount of profit allocated to the CEP sales made by CIC to its unaffiliated U.S. customers. Section 772(f)(2)(B) of the Act directs us to allocate profit to all expenses deducted under section 772(d)(1) and (2) of the Act. Because the purpose of the CEP adjustment is to construct the arm's-length equivalent of a sale from the exporter to the U.S. affiliate by subtracting expenses associated with the downstream sale by the affiliate to the first unaffiliated customer and profit allocated to those expenses, there is no reason to include in this calculation expenses associated with the upstream sale by Cinsa's export office. As explained in Comment 3, above, the indirect selling expenses referred to in section 772(d)(1)(D) of the Act do not include those expenses incurred by the foreign producer in making the sale to the U.S. affiliate. Moreover, the SAA, at 824-25, clarifies that, whether incurred by the foreign producer or the U.S. affiliate, the selling expenses to be used in the CEP profit calculation are those associated with the sale made in the United States. Accordingly, the indirect selling expenses incurred in Mexico in connection with the original CEP sales to CIC are properly excluded from the U.S. selling expense portion of the CEP profit calculation, in accordance with section 772(f)(2)(B) of the Act. Following this logic, the selling expenses incurred by Cinsa in connection with the sale to the unaffiliated U.S. customer are included in the CEP profit calculation. See Calculation Memo. Movement expenses are included in "total expenses" pursuant to the Department's policy as embodied in Policy Bulletin 97.1 "Calculation of Profit for Constructed Export Price Transactions." This policy, in recognizing that total profits are based upon expenses that include movement expenses, comes the closest to meeting the statutory purpose of the CEP profit calculation. We have not acquiesced to the Court's holding in U.S. Steel Group with respect to this issue because we are seeking appeal of that decision. Congress has expressly clarified in the SAA, at 824, that section 772(d)(3) refers to profit allocable to "selling, distribution, and further manufacturing" activities in connection with the affiliate's U.S. sale. Excluding movement from "total expenses" would incorrectly discount the proportionality that must logically exist between the "total expenses" calculated and the profits attributable to those expenses, when those profits are based on expenses that include movement. Moreover, such an exclusion fails to achieve the statutory purpose of removing the profits associated with all aspects of the affiliate's sale in the United States. Accordingly, for purposes of the final results, we have included movement expenses in "total expenses" for the CEP profit calculation. Finally, we have confirmed that CIC's additional expenses for bad debt, depreciation, and repacking expenses are included in "total United States expenses" for purposes of calculating the CEP profit ratio. With respect to bad debt expense, see also Comment 4, above. Comment 6: CEP Offset Adjustment The petitioner states that, in determining the level of trade (LOT) of CEP transactions, the Department reviewed the selling functions associated with adjusted transactions rather than those associated with actual transactions (the starting price transactions), and incorrectly concluded that there are differences in home market and U.S. levels of trade. According to the petitioner, neither a LOT adjustment nor a CEP offset adjustment is warranted with respect to any transaction covered by this review. The petitioner argues that, although the Department's preliminary methodology for identifying levels of trade is consistent with the Department's current regulations, a regulation which requires actions that are contrary to both the language and intent of the governing statute cannot be given controlling weight. The petitioner argues that the Department has attempted to justify its methodology by asserting that section 772(d) of the Act requires, prior to the comparison of CEP with normal value, that certain expenses be deducted from the resale price paid by the unaffiliated purchaser in the United States. The petitioner claims, however, that the Department's methodology misconstrues the language and logic of the statute for the following reasons: (1) the Department fails to recognize that the plain language of the statute does not permit the Department to make the section 772(d) adjustments prior to the identification of levels of trade; (2) the difference in selling functions must be based on an analysis of actual transactions; (3) this plain language interpretation of the statute is inconsistent with the SAA, which notes that "section 773(a)(1)(B)(i) codifies Commerce's current practice of calculating normal value, to the extent practicable, on the basis of home market sales that are made at the same LOT as the constructed export price or the starting price for the export price" (SAA at 827); (4) the Department's current practice improperly makes LOT (or CEP offset) adjustments the rule in affiliated importer situations; and (5) two different judges at the CIT have held that the Department's current practice is contrary to law, both because it is inconsistent with the language and purpose of the statute and because it leads to a virtually automatic CEP offset. The petitioner relies upon Borden, Inc. v. United States, 4 F. Supp. 2d 1221, 1237 (CIT 1998) (Borden) and Micron, 40 F. Supp. 2d 481, 485-86. Therefore, for the final results, the petitioner contends the Department should determine differences in levels of trade based on an analysis of all selling functions associated with both normal value and CEP starting price transactions. Finally, the petitioner argues that no justification exists for a LOT determination in this review that is inconsistent with the final results of the 9th, 10th, and 11th reviews because the respondents have not attempted to demonstrate that their distribution systems in Mexico and/or the United States have changed in any material respect. According to the petitioner, if the Department intends to apply the same LOT methodology in this review that it did in prior reviews, the Department should reach the same conclusion in this review as it did in those reviews. The respondents claim that the Department correctly determined that sales to CIC were at a less advanced LOT than the LOT of home market sales, that the available data did not provide an appropriate basis to measure a LOT adjustment and, therefore, that the preliminary results properly included a CEP offset. The respondents argue that, contrary to the petitioner's claim, Cinsa and ENASA perform significantly more selling functions for sales to home market customers than for CEP sales to CIC. With regard to the petitioner's argument that the appropriate LOT analysis should be based on CIC's starting price for CEP sales rather than Cinsa's or ENASA's sales to its U.S. affiliate, the respondents point out that the Department has stated that the decision in Borden is not final and that it will continue to apply the methodology articulated in its regulations at section 351.412. Moreover, according to the respondents, after considering arguments as to why the CEP LOT should be based on the starting price, the Department rejected the arguments and implemented regulations consistent with the SAA regarding the identification of levels of trade. Finally, the respondents argue that the CEP offset determinations in prior reviews were based on different records before the Department. The respondents also claim that even the petitioner acknowledges that the Department may adopt a different position as long as it explains the basis for its different determination. According to the respondents, the Department's preliminary results provided a detailed explanation of its determination. The respondents contend that the petitioner simply does not like the determination, but it cannot argue that the Department failed to explain the basis for its determination. DOC Position: The Department agrees with the respondents that a CEP offset should be granted for both the original CEP sales and the sales originally reported as export price sales. The Department is continuing its practice, articulated in section 351.412(c) of its regulations, of making LOT comparisons for CEP sales on the basis of the constructed export price, in other words, the export price after adjustments provided for in section 772(d) of the statute have been made to the "starting price." As stated in Certain Stainless Steel Wire Rods from France: Final Results of Antidumping Duty Administrative Review, 63 FR 30185 (June 3, 1998), we recognize that the Department's practice has been criticized by the Court of International Trade in Borden. The Department is not acquiescing to the decision in Borden because it is appealing that decision to the CAFC. Furthermore, it was unable to appeal the Micron decision because that decision did not result in a change in the margin. We believe our practice to be in full compliance with the statute and the regulations. Thus, we will continue to apply the methodology articulated in the regulations at section 351.412 pending the resolution of this issue by the CAFC. As noted above, section 351.412(c) of the regulations expressly directs the Department to make LOT comparisons for CEP sales on the basis of the constructed export price. Therefore, the Department made a LOT comparison based on the constructed sale from the exporter to the affiliated importer, after the deductions required under section 772(d) of the Act. As stated in our preliminary results, to determine whether normal value sales are at a LOT different from CEP, we examine stages in the marketing process and selling functions along the chain of distribution between the producer and the unaffiliated customer. If the comparison-market sales are at a different LOT, and the difference affects price comparability, as manifested in a pattern of consistent price differences between the sales on which normal value is based and comparison-market sales at the LOT of the export transaction, we make a LOT adjustment under section 773(a)(7)(A) of the Act. For CEP sales, if the normal value level is more remote from the factory than the CEP level, and there is no basis for determining whether the difference in the levels between normal value and CEP affects price comparability, we adjust normal value under section 773(a)(7)(B) of the Act (the CEP offset provision). See Notice of Final Determination of Sales at Less Than Fair Value: Certain Cut-to-Length Carbon Steel Plate from South Africa, 62 FR 61731 (November 19, 1997). In the preliminary results, we performed a LOT analysis for the sales originally reported as CEP sales. We determined that the four home market channels of distribution comprise a single LOT and that all sales originally reported as CEP sales constitute a single LOT in the United States. Our analysis compared the selling functions and the level of activity associated with Cinsa's sales to affiliated U.S. importer CIC with the sales by COMESCO, the respondents' affiliated sales organization in Mexico, to unaffiliated purchasers in Mexico. Based on our analysis, we concluded that the comparison- market and CEP channels of distribution are sufficiently different to determine that two different LOTs exist, and that the comparison- market sales are made at a more advanced LOT than are the original CEP sales. As there was no comparison-market LOT that was comparable to that in the United States, we had no basis for determining whether the difference in LOTs affects price comparability. Therefore, we made a CEP offset to normal value for these sales, calculated as the lesser of: (1) indirect selling expenses on the comparison-market sale, or (2) the indirect selling expenses deducted from the starting price in calculating CEP. For further discussion, see Preliminary Results, 64 FR at 60420-21. We stated in the Preliminary Results that Cinsa did not provide the selling function information necessary to evaluate LOTs associated with the former export price sales and, therefore, we did not perform a LOT analysis for these sales. Had we had the necessary information at that time, we would have examined the selling functions related to Cinsa's sale to the unaffiliated purchaser in the United States. However, because the former export price sales are now considered CEP sales (see, Comment 2, above), for purposes of the final results we are examining the selling functions related to Cinsa's sales to CIC, the constructed export price sale. With regard to the sales originally reported as export price sales, we note that because these sales were arranged between Cinsa in Mexico and the unaffiliated customers in the United States, the selling functions/activities performed by Cinsa (e.g., freight and delivery arrangement and payment processing/accounts receivable management) in making the related sales to CIC were limited. However, the sales to CIC associated with the sales originally classified as export price sales and the sales to CIC associated with the original CEP sales are made at the same LOT, because they do not represent different marketing stages. Any differences in selling functions or level of activity between the two U.S. LOTs are minor. See 19 CFR § 351.412(b)(2). Therefore, we determine that all U.S. sales constitute a single LOT in the United States. As indicated above, we determined that the comparison-market sales are made at a more advanced LOT than the original CEP sales. It follows, therefore, that because no more selling functions are associated with the former export price sales than with the original CEP sales, the comparison-market sales are also made at a more advanced LOT than the former export price sales. As there is no comparison-market LOT that is comparable to that in the United States, we have no basis for determining whether the difference in LOTs affects price comparability. Therefore, we made a CEP offset to normal value, calculated as described above, for the former export price sales as well as for the original CEP sales. Comment 7: Pre-Sale Warehousing Expenses The respondents argue that the Department improperly classified Cinsa's and ENASA's reported pre-sale warehousing expenses incurred in Saltillo on behalf of home market and U.S. sales as fixed overhead expenses rather than as indirect selling expenses. The respondents argue that (1) pre-sale warehousing expenses are not manufacturing costs attributable to the production of the subject merchandise; (2) because the reported cost of production and constructed value were calculated inclusive of indirect selling expenses, pre-sale warehousing expenses were double-counted - once as a component of selling, general and administrative expenses, and once as an addition to fixed overhead costs; and (3) the Department's calculation overstated the amount of pre-sale warehousing expenses added to fixed overhead by adding the total amount of reported pre-sale warehousing expenses incurred on both Cinsa and ENASA merchandise to both of the respondents' fixed overhead expenses, as opposed to allocating the expenses between the respondents. The respondents point out that the Department treated the Saltillo pre-sale warehousing expenses as indirect selling expenses in the final results of the 9th review, which was affirmed by the NAFTA panel, and also in the 10th and 11th administrative reviews. Counsel for the respondents further states that it has been unable to locate a single administrative determination that treated allowable pre-sale warehousing expenses incurred at the factory as anything other than indirect selling expenses. Moreover, the respondents argue that the Department failed to provide any explanation for its abrupt departure from its longstanding practice. For purposes of the final results, the respondents submit that the Saltillo pre-sale warehousing expenses should be treated as indirect selling expenses and included in the pool of indirect selling expenses for the calculation of the CEP offset adjustment to normal value. The petitioner did not comment on this issue. DOS Position: We agree with the respondents that the reported pre-sale warehouse expenses are more appropriately classified as indirect selling expenses. We classified these expenses as indirect selling expenses in the 9th, 10th and 11th reviews of this order. Furthermore, the treatment of pre-sale warehouse expenses as indirect selling expenses eliminates the alleged problems of double-counting and allocation of the expenses between Cinsa and ENASA, as pointed out by the respondents. Accordingly, for purposes of the final results, we have included these expenses in both the CEP profit and CEP offset calculations, as appropriate. Comment 8: Model Matching Methodology The respondents argue that the model matching methodology applied in the preliminary determination failed to make proper comparisons to the most similar merchandise, in accordance with section 771(16)(B) of the Act. According to the respondents, the Department failed to identify the most similar products according to the guidelines identified by the respondents, i.e., quality, configuration, size, number of enamel coatings, and color or decoration. The respondents cite examples from the preliminary results where the Department matched products that they claim did not meet the statutory elements of "like that merchandise in component material...and in the purposes for which used," and "approximately equal in commercial value to that merchandise," such as the comparison of a roaster, designed for use in the oven, to a stewpot, designed for use on top of a stove. Moreover, the respondents claim that, even when the Department identified a product comparison as "IDENTICAL," the items were not identical in all respects. The respondents submit that the Department must revise its model matching program to obtain comparisons based on the most similar product according to the methodology used prior to the 10th review of the antidumping duty order. Alternatively, if the Department continues to rely on the use of product characteristics, the respondents state that comparisons should not be made based on products that differ in terms of cookware category (e.g., ovenware, stoveware), general model type (e.g., roaster, frying pan), interior coating, number of exterior coats, and presence of decoration. The petitioner argues that the respondents have not objected to the Department's model matching methodology until now, and, therefore, the Department should not consider this last-minute request for fundamental changes in the way the Department matches products. The petitioner states that the Department, in the 10th and 11th reviews, as well as in the preliminary results of the instant review, rejected the methodology the respondents are now suggesting in their case brief. The petitioner asserts that the Department's model matching methodology is consistent with the statute and the Department's standard practice and, contrary to the respondents' claims, worked precisely as intended and as described in the preliminary results. In addition, the petitioner states that, although the respondents seem to argue that there should be additional such or similar categories based on end use, all porcelain-on-steel cookware has the same general purpose -- to cook -- and the difference between light- gauge ovenware and top-of-the-stove cookware is minor compared with the differences been light-gauge and heavy-gauge cookware. Moreover, the petitioner asserts that the choice of characteristics that the respondents request be used for model matching would actually result in less accurate model matching than the current system because these characteristics fall primarily in the latter half of the model matching hierarchy (i.e., are, for the most part, the less important matching criteria established by the Department). In sum, the petitioner argues that no basis exists to make any individual matching criterion determinative in selecting the most similar product and the Department, therefore, should reject the respondents' argument and apply the same model matching methodology in the final results. DOC Position: We agree with the petitioner. The Department properly identified the most similar matches according to the Department's model matching methodology, which has been used in the previous two administrative reviews. The respondents acknowledged at the hearing that the issue is not a computer programming error, as their brief seemed to suggest, but rather the Department's model matching methodology itself. The respondents conceded that the preliminary results properly identified the most similar product according to the product characteristic hierarchy applied by the Department. See transcript from the Hearing on the Anti-Dumping Duty Administrative Review of Porcelain-on-Steel Cookware from Mexico dated March 30, 2000, at page 51. The respondents' argument is, in effect, that the Department should discard the current product characteristic hierarchy, and instead make matches using respondents' product code methodology. We find no basis to conclude that the respondents' product characteristic hierarchy is superior to the Department's hierarchy. The former methodology was used through the 9th review of this order, where we found that the physical characteristics incorporated in the respondents' product code - quality, configuration, size, number of enamel coatings, color and decoration - were insufficient to identify the most similar product when no identical matches were available. The respondents acknowledged these difficulties in appealing some of the Department's 9th review model matches before the NAFTA panel. (The respondents eventually dropped this issue from their appeal.) To enable the Department to efficiently and objectively identify the most similar models, we adopted a more detailed product characteristic hierarchy based on comments from both the petitioner and the respondents in the preliminary results of the 10th review (63 FR 1430, 1431, January 9, 1998). Under this methodology, we match foreign like products based on physical characteristics in the following order: quality, gauge, cookware category, model, shape, wall shape, diameter, width, capacity, weight, interior coating, exterior coating, grade of frit, color, decoration, and cover. Through the remainder of the 10th review, all through the 11th review, and until they raised the issue for the first time in their case brief in the 12th review, the respondents found no cause to object to this model matching methodology. Moreover, the respondents have failed to explain why the Department's hierarchy does not match the most similar products. In their brief, the respondents identify what is purported to be an egregious example of a mismatch according to the Department's model matching methodology: the fact that the Department matched a round roasting pan to a stewpot. A closer look at the data submitted by respondents in their brief shows that such matches were made in only a handful of cases when, in particular months, the Department was unable to identify a more similar match. In the overwhelming majority of transactions involving the products cited by the respondents, the Department was able to match identical products even in terms of the respondents' product codes (see Respondents' March 23, 2000, case brief at Exhibit 2.) Moreover, the respondents' fail to identify an available home market product match which they deem would have been a better similar match to the U.S. product for the examples they cite, given that no identical matches were available. In short, the respondents have failed to demonstrate that the Department's model matching methodology is deficient or unreasonable. With regard to the respondents' legal arguments, we find no basis to conclude that the current model matching methodology is contrary to the statutory criteria under section 771(16)(B) of the Act. As noted by the petitioner, all products compared are like the subject merchandise in component material (either light-gauge, or medium/high- gauge porcelain-on-steel) and in purpose for which used (i.e., cooking), in accordance with section 771(16)(B) of the Act. Further, the products compared are approximately equal in commercial value; and comparisons of products with variable cost differences exceeding 20 percent are not made, in accordance with the Department practice established in Policy Bulletin 92.2 Difference in Merchandise; 20% rule (July 29, 1992), and applied consistently since then. See, e.g., Notice of Final Results and Partial Rescission of Antidumping Duty Administrative Review: Certain Pasta From Italy, 64 FR 6615, 6626 (February 10, 1999). Accordingly, we have not adopted the respondents' proposed model matching methodology. Finally, as to the respondents' claim that the Department identified product comparisons as "IDENTICAL" when, in fact they were not, we acknowledge that the preliminary margin calculation program appears to have designated erroneously price-to-price comparisons of merchandise other than sets as "IDENTICAL," rather than "PRICE-TO- PRICE." However, the product concordance properly identifies product comparisons where the models are identical according to the Department's criteria as identical, or "I;" other comparisons are designated as similar, or "S." For the final results, we have corrected the "FLAG" variable which caused the respondents' confusion. In addition, we have modified the computer programs to resolve a programming problem which prevented matching costs to all sales. The programming changes streamlined the application of the Department's model matching methodology by linking the product matching characteristics and relevant difference-in-merchandise cost data to the respondents' product codes, without creating new control numbers, as was done in the preliminary margin calculation programs. Recommendation Based on our analysis of the comments received, we recommend adopting all of the above positions. If these recommendations are accepted, we will publish the final results of review and the final weighted-average dumping margin for the reviewed firms in the Federal Register. Agree____ Disagree____ _____________________ Troy H. Cribb Acting Assistant Secretary for Import Administration _____________________ (Date) ___________________________________________________________________ footnotes" 1. Although this broader reading may be more responsive to the primary purpose underlying the reimbursement regulation, the Department's interpretation of the reimbursement regulation in prior reviews-which responded to other important concerns, such as the question of administrative burdens--also was a reasonable one. The Department has the authority to make policy choices between reasonable alternatives in seeking to carry out its mandate in the best possible way. Recognition that there may be a better solution, however, does not imply the repudiation of the legitimacy of the prior alternative. 2. In addition, the cash deposit figures originally reported by the respondents in their sales listing for the 12th POR were incorrect for certain transactions due to the use of an incorrect cash deposit rate, and only the Cinsa cash deposit rates were used in the calculation reviewed at verification. In our analysis, we corrected the respondents' methodology by applying the Cinsa or ENASA rate, whichever appropriate, to the reported entered value based on the reported date of invoice for the particular transaction (because entry date was not available for many transactions), and aggregated the result for all transactions to arrive at the total cash deposit amount for the POR.