Persulfates from the People's Republic of China: Final Results of Antidumping Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[A-570-847]

Persulfates from the People's Republic of China: Final Results of

Antidumping Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce

ACTION: Notice.

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SUMMARY: On August 6, 1999, the Department of Commerce published the

preliminary results of its first administrative review of the

antidumping duty order on persulfates from the People's Republic of

China. See Persulfates from the People's

[[Page 69495]]

Republic of China: Preliminary Results of Antidumping Duty

Administrative Review, and Partial Rescission of Administrative Review,

64 FR 42912 (August 6, 1999). The period of review is December 27,

1996, through June 30, 1998. Based on our analysis of comments

received, we have made changes to the margins calculated for purposes

of the preliminary results, including corrections of certain clerical

errors. The final weighted-average dumping margins are listed below in

the section entitled ``Final Results of Review.''

We have determined that sales have been made below normal value

during the period of review. Accordingly, we will instruct the Customs

Service to assess antidumping duties based on the difference between

export price and normal value.

EFFECTIVE DATE: December 13, 1999.

FOR FURTHER INFORMATION CONTACT: Sunkyu Kim or James Nunno, AD/CVD

Enforcement Group I, Office II, Import Administration, International

Trade Administration, U.S. Department of Commerce, 14th Street and

Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-

2613 or (202) 482-0783, respectively.

APPLICABLE STATUTE AND REGULATIONS: Unless otherwise indicated, all

citations to the Tariff Act of 1930, as amended (the Act), are

references to the provisions effective January 1, 1995, the effective

date of the amendments made to the Act by the Uruguay Round Agreements

Act. In addition, unless otherwise indicated, all citations to the

Department of Commerce's (the Department's) regulations are to the

regulations at 19 CFR Part 351 (April 1998).

SUPPLEMENTARY INFORMATION:

Background

On August 6, 1999, the Department published in the Federal Register

the preliminary results of the administrative review of the antidumping

duty order on persulfates from the People's Republic of China (PRC).

See Persulfates from the People's Republic of China: Preliminary

Results of Antidumping Duty Administrative Review, and Partial

Rescission of Administrative Review, 64 FR 42912 (August 6, 1999)

(Preliminary Results). We gave interested parties an opportunity to

comment on our preliminary results and held a public hearing on October

28, 1999. The following parties submitted comments: FMC Corporation

(the petitioner); Shanghai Ai Jian Import & Export Corporation (Ai

Jian), Sinochem Jiangsu Wuxi Import & Export Corporation (Wuxi), and

Shanghai Ai Jian Reagent Works (AJ Works) (producer for Ai Jian and

Wuxi) (collectively, the respondents).

The Department has now completed this administrative review in

accordance with section 751(a) of the Act.

Scope of Review

The products covered by this review are persulfates, including

ammonium, potassium, and sodium persulfates. The chemical formula for

these persulfates are, respectively, (NH sub4 ) sub2 S sub2 O sub8 , K

sub2 S sub2 O sub8 , and Na sub2 S sub2 O sub8 . Ammonium and potassium

persulfates are currently classified under subheading 2833.40.60 of the

Harmonized Tariff Schedule of the United States (HTSUS). Sodium

persulfate is classified under HTSUS subheading 2833.40.20. Although

the HTSUS subheadings are provided for convenience and customs

purposes, our written description of the scope of this review is

dispositive.

Export Price

For both Ai Jian and Wuxi, we calculated export price (EP) in

accordance with section 772(a) of the Act, because the subject

merchandise was sold directly to the first unaffiliated purchaser in

the United States prior to importation and constructed export price

(CEP) methodology was not otherwise warranted, based on the facts of

record. We calculated EP based on the same methodology used for

purposes of the preliminary results.

Normal Value

Section 773(c)(4) of the Act requires the Department to value the

non-market economy (NME) producer's factors of production, to the

extent possible, in one or more market economy countries that: (1) are

at a level of economic development comparable to that of the NME, and

(2) are significant producers of comparable merchandise. As stated in

the Preliminary Results, the Department has determined in this case

that India meets both statutory requirements for an appropriate

surrogate country. For purposes of the final results, we have continued

to rely on India as the surrogate country. Accordingly, we have

calculated normal value (NV) using Indian surrogate values for the PRC

producers' factors of production except in those instances where an

input was sourced from a market economy and paid for in a market

economy currency.

We used the same methodology for calculating NV as that described

in the Preliminary Results, with the following exceptions: (1) We

corrected our adjustment for the sales and excise taxes included in the

values reported in Chemical Weekly because of an inadvertent error (see

comment 12 below); (2) we adjusted the calculation of freight costs

incurred between the suppliers of packing materials (i.e., polyethylene

and woven bags, polyethylene sheet, wood pallets, fiberboard, and

polypropylene sacks) and AJ Works in order to correct certain errors

made in the preliminary results calculations; (3) we included AJ Works'

indirect labor hours in our calculation of labor expenses, which were

inadvertently omitted from our preliminary results calculations (see

comment 10 below); (4) we adjusted AJ Works' reported indirect labor

hours to account for the labor hours of additional employees that were

previously not included (see comment 10 below); (5) we reclassified

certain depreciation expenses from Calibre Chemicals Pvt. Limited's

(Calibre's) financial statements as selling, general, and

administrative expenses (SG&A) expenses, which results in a change to

the overall factory overhead and SG&A ratios (see comment 7 below). See

the U.S. Price and Factors of Production Adjustments for the Final

Results (Calculation Memorandum) and Final Results Factors Valuation

Memorandum from the Team to the File (Factors Memorandum) dated

December 6, 1999, for a more detailed explanation of these calculation

changes.

Analysis of Comments Received

Comment 1: Construction Costs for New PRC Factory and Alleged Fire at

the New Facility

The petitioner argues that the Department failed to incorporate in

the normal value calculation costs related either to the construction

of a new factory or to a fire that allegedly occurred at AJ Works

during the period of review (POR) and, as a result, the normal value

was understated. The petitioner further argues that, despite the

petitioner's requests, the Department failed to obtain from AJ Works

information related to these two events. The petitioner asserts that

the Department has an obligation to investigate antidumping cases and

to assign fair dumping margins, and that the failure to obtain data

requested by the petitioner constitutes an abuse of discretion. The

petitioner cites several court cases in which it claims that the Court

of International Trade (CIT) required the Department to perform an

investigation of the facts related to the issues of the related

antidumping

[[Page 69496]]

proceedings (e.g., Wieland-Werke AG v. United States, 4 F. Supp. 2d

1207 (CIT 1998), Rhone-Poulenc, Inc. v. United States, 927 F. Supp.

451, 456 (CIT 1996), and Freeport Minerals Company v. United States,

776 F.2d 1029, 1034 (Fed. Cir. 1985)).

The petitioner states that the initial operations of a new

production plant have an adverse effect on all categories of

manufacturing costs. In particular, the petitioner notes that during

the initial phase of production, the production volume will generally

be lower than normal, which results in higher per-unit fixed costs,

most notably depreciation expenses. Similarly, the petitioner states

that a company that experienced a fire will have higher per-unit costs

due to the disruption in production. In a market-economy case, the

petitioner asserts, costs related to a new factory or a fire are

captured in the cost of manufacturing of a market-economy respondent.

In this case, the petitioner argues, if the Department does not account

for such increases in AJ Works' cost of manufacturing, the normal value

for the respondents will be understated.

The petitioner contends that the Department should have issued a

questionnaire to AJ Works in order to confirm that a fire did occur at

AJ Works' production facility and obtain sufficient information to

allow the Department to value the costs related to the fire. With

respect to the construction of a new factory, the petitioner submits

that the Department must develop a methodology for calculating

additional costs and increase AJ Works' normal value accordingly.

The respondents rebut that the petitioner's concerns about costs

related to the construction of a new factory or an alleged fire are

irrelevant in an NME proceeding. The respondents argue that although AJ

Works' accounting records may indicate additional factory overhead and

SG&A expenses resulting from costs related to the construction of a new

factory or a fire, such expenses were incurred in NME currencies and

are, therefore, considered by the statute to be unreliable for purposes

of calculating dumping margins. Citing the preamble to the Department's

regulations in which the Department stated that the ``use of an NME

price as a benchmark is inappropriate because it is the unreliability

of NME prices that drives us to use the special NME methodology in the

first place,'' the respondents argue that the Department does not

consider the expenses incurred by the NME producer relevant to the

surrogate value analysis. See Antidumping Duties: Countervailing

Duties; Final Rule, 62 FR 27296, 27367-27368 (May 19, 1997) (Final

Rule). Thus, the respondents argue that the petitioner's proposal to

add ``factors of construction'' to the calculation of AJ Works'' normal

value is contrary to statutory intent and the Department's established

NME practice of disregarding transactions that involve non-market

economy prices.

Furthermore, the respondents claim that the Department does not

permit an adjustment of the surrogate factory overhead, SG&A or profit

values merely because the circumstances of the surrogate producer are

different from that of the NME respondent's experience. The respondents

cite the preamble to the Department's regulation in which the

Department stated that ``we do not believe it is appropriate to check

surrogate values {for manufacturing overhead, general expenses, and

profit} against the NME respondents' experience.'' Final Rule, 62 FR at

27366.

Regarding the petitioner's argument concerning the Department's

obligation to investigate claims made by the petitioner, the

respondents assert that in the same court cases cited by the

petitioner, the CIT did not obligate the Department to investigate

information that is irrelevant to the Department's determination or

based on speculation. In the present case, the respondents continue,

the petitioner's concerns about AJ Works' construction and fire-related

costs are purely speculative and contradicted by the record evidence

that has been fully verified by the Department. Accordingly, the

respondents urge the Department to reject the petitioner's proposal to

calculate ``factors of construction'' or costs related to an alleged

fire.

DOC Position

We disagree with the petitioner that the normal value we calculated

for AJ Works in the preliminary results is understated. In accordance

with section 773(c)(1) of the Act, we calculated normal value based on

AJ Works' factors of production, including amounts for direct

materials, labor hours, energy, and surrogate values for factory

overhead, SG&A and profit. The petitioner requests that we increase the

normal value to capture additional costs AJ Works incurred related to

the construction of a new factory and an alleged fire. The petitioner's

argument, however, has no statutory basis. The NME normal value

provisions of the statute neither direct us nor provide us with a

method by which to make the types of adjustments requested by the

petitioner. In addition, such an adjustment is not in accordance with

Department practice.

With respect to the petitioner's argument concerning the increase

in the per-unit fixed costs, in particular depreciation expenses,

during an initial phase of production, we note that such expenses are

included in factory overhead, which in this review is based on the

surrogate overhead expenses of Calibre. We do not find it appropriate,

however, to adjust Calibre's factory overhead costs to match the

experience of AJ Works. In this regard, we cite to the Department's

position in Tapered Roller Bearings and Parts Thereof, Finished or

Unfinished, From Romania: Final Results and Rescission in Part of

Antidumping Duty Administrative Review, 61 FR 51427 (October 2, 1996)

(TRBs from Romania). In that review, we stated, ``[t]he Department

normally bases normal value completely on factor values from a

surrogate country on the premise that the actual experience in the NME

cannot meaningfully be considered.'' See TRBs from Romania, 61 FR at

51429. Based on this principle, the Department articulated in other

cases that with respect to overhead and SG&A surrogate values, the

Department does not customize the values to match the circumstances of

the PRC producer. See e.g., Tapered Roller Bearings and Parts Thereof,

Finished and Unfinished, From the People's Republic of China: Final

Results of 1996-1997 Antidumping Duty Administrative Review and New

Shipper Review and Determination Not To Revoke Order in Part, 63 FR

63842, 63853 (November 17, 1998); Certain Helical Spring Lock Washers

From the People's Republic of China: Final Results of Antidumping

Administrative Review, 61 FR 41994, 41999 (August 13, 1996).

Accordingly, we find no basis to attempt to manipulate Calibre's

financial data to capture construction-related costs incurred by AJ

Works.

Contrary to the petitioner's claim, none of the court cases cited

by the petitioner requires that we obtain information that is not

relevant to our determination. Although we do have information on the

record that AJ Works began production in a new facility during the POR,

we did not obtain further information concerning costs related to the

new production facility because such information is not relevant for

purposes of calculating normal value within the parameters of our NME

calculation methodology. For the same reason, we did not obtain

information on whether AJ Works experienced a fire during the POR.

[[Page 69497]]

Comment 2: Whether to use Calibre's 1997 or 1998 Data, or the Average

for Purposes of Calculating Factory Overhead, SG&A, and Profit

To value the respondents' factory overhead, SG&A and profit for

purposes of the preliminary results, we calculated surrogate ratios

based on Calibre's financial statements for fiscal years 1997 and 1998.

(Calibre's fiscal year begins on April 1 and ends on March 30.) Both

the petitioner and the respondents disagree with the Department's

calculation of these surrogate ratios based on the average of 1997 and

1998 data.

The petitioner argues that if the Department does not include

additional costs related to the construction of the new factory in the

calculation of normal value, the Department, as an alternative, should

use Calibre's 1997 financial data, as opposed to an average of 1997/

1998 data. The petitioner contends that the data from Calibre's 1997

fiscal year is more reflective of AJ Works' experience of constructing

a new factory during the POR, because information from Calibre's

financial statements suggests that Calibre expanded its production

facilities during its 1997 fiscal year. Specifically, the petitioner

argues that certain overhead costs decreased from Calibre's 1997 fiscal

year to its 1998 fiscal year, although its production volume increased.

The data also indicate that production capacity increased, while

expenses related to subcontracting labor decreased during that same

period.

The petitioner asserts that the Department has broad discretion in

the selection and application of surrogate values, and that it may

reject certain portions of Calibre's financial statements, or all of

its financial statements, if it determines that these data are not

reliable indicators of surrogate values for factory overhead, SG&A, or

profit. The petitioner cites Nation Ford Chemical Company v. United

States, 166 F.3d 1373, 1377 (Fed. Cir. 1999) (Nation Ford), in which

the Department maintained that it ``has the discretion to use whatever

values are the most reflective of the experience of the NME producer.''

Therefore, because Calibre's data indicate that it expanded its

production facility during the 1997 fiscal year, the petitioner argues

that the Department should use only the 1997 data in its calculations

in order to reflect accurately the experience of AJ Works.

The respondents, on the other hand, argue that the Department

should calculate surrogate overhead, SG&A expenses, and profit based

only on Calibre's 1998 data because Calibre's 1998 fiscal year is

contemporaneous with most of the respondents' U.S. sales. The

respondents state that for administrative reviews, the Department

calculates entry-specific dumping margins based on the date of each

U.S. sale, in accordance with section 751(a)(2)(A) of the Act and 19

CFR 351.414. The respondents claim that the fundamental reasoning

behind this methodology is to determine whether the specific U.S. sale

is being sold at less than fair value when compared to the normal value

of merchandise produced contemporaneously with the U.S. sale. The

respondents contend that the Department's decision to average Calibre's

1997 and 1998 financial data creates a distorted normal value that is

not contemporaneous with the sales of subject merchandise.

The petitioner objects to the respondents' argument to use only

Calibre's 1998 data, and argues that contemporaneity is more accurately

defined by the review period itself, not the period of time within a

review period that a respondent made its sales to the United States.

The petitioner asserts that the respondents' argument is not supported

by case precedence, and that the proposed methodology of choosing

surrogate value data based on the date of the U.S. sale can allow an

NME respondent to manipulate its future U.S. sale dates based on the

available surrogate value data. The petitioner also argues that in

addition to contemporaneity, accuracy is an important factor in

selecting surrogate value data.

DOC Position

We disagree with both the petitioner and the respondents. First, we

address the petitioner's argument that factory overhead expenses should

be based solely on Calibre's 1997 fiscal year. The POR in this review

overlaps both Calibre's 1997 and 1998 fiscal years. Calibre's 1997

fiscal year covers three months of the POR while Calibre's 1998 fiscal

year falls entirely within the POR. In valuing factors of production,

we select, where possible, surrogate values that are representative of

a range of prices either within the POR or most contemporaneous with

the POR. In this case, both Calibre's 1997 and 1998 fiscal years are

contemporaneous with the POR.

With respect to the petitioner's argument that Calibre's 1997

fiscal year is most reflective of AJ Works' experience during the POR

because it allows the Department to estimate the increase in AJ Works'

costs, we emphasize the Department's consistent practice with regard to

this matter discussed above under Comment 1. Specifically, as noted

above, the Department does not tailor the factory overhead and SG&A

expenses of a surrogate company to match the experience of the PRC

producer. The U.S. Court of Appeals upheld in Nation Ford that,

although ``a surrogate value must be as representative of the situation

in the NME country as is feasible,'' we are not required to ``duplicate

the exact production experience of the NME producer'' at the expense of

choosing a surrogate value that most accurately represents the fair

market value of the various factors of production in the surrogate

country. Further, the U.S. Court of Appeals upheld the decision made in

Magnesium Corp. of Am. v. United States, 166 F. 3d 1364 (CAFC 1999),

that a factors of production analysis ``does not require item-by-item

accounting for factory overhead.'' Therefore, for purposes of

calculating surrogate factory overhead based on Calibre's data, we find

it inappropriate to attempt to match Calibre's factory overhead

expenses to AJ Works' production experience.

Regarding the respondents' arguments, we disagree that the use of

both 1997 and 1998 data distorts normal value and is inconsistent with

the Department's practice. First, the respondents incorrectly argue

that 19 CFR 351.414 directs the Department to compare each U.S. sale to

the normal value that is contemporaneous with the date of U.S. sales.

This section of our regulations applies to the calculation of normal

value in a market economy, which is not applicable in this

administrative review, because AJ Works is located in an NME country.

In an NME proceeding, contemporaneity is defined by the POR itself,

not the period of time within the POR that a respondent made its sales

to the United States. As noted above, the POR in this instance is

within both Calibre's 1997 and 1998 fiscal year periods. Furthermore,

as the petitioner notes, in selecting surrogate values, we consider the

accuracy of the data in addition to contemporaneity. As we noted in the

Preliminary Results, because of the substantial differences between

Calibre's 1997 and 1998 overhead and SG&A data, we determined that it

was appropriate to average the 1997 and 1998 fiscal years in order to

smooth out the effect of such differences. Thus, while Calibre's fiscal

year 1998 fully coincides with the POR, the POR in fact is within both

Calibre's 1997 and 1998 fiscal year periods and using both fiscal years

results in the most accurate surrogate values for factory overhead and

SG&A.

[[Page 69498]]

Based on the foregoing, we continued to find that averaging

Calibre's 1997 and 1998 fiscal year data is most appropriate and,

therefore, have continued to use the average data for purposes of

calculating surrogate factory overhead, SG&A, and profit ratios.

Calculation of Factory Overhead

Comment 3: Allocation of Factory Overhead Expenses Between Subject and

Non-Subject Merchandise

For purposes of our preliminary results, we allocated Calibre's

total factory overhead expenses between subject and non-subject

merchandise based on raw material input quantities as reported in the

company's financial statements. The respondents contend that the

Department's allocation methodology is unsupported by record evidence

and inconsistent with Department practice. First, the respondents argue

that neither the Department nor the petitioner provided any documentary

support for using raw material input quantity as the allocation basis.

In particular, the respondents claim the Department's analysis fails to

explain why it is more appropriate to use relative input quantities

rather than input values as the allocation basis.

In fact, the respondents submit, the Department has a preference

for a value-based allocation methodology where two co-products produced

from a common production process vastly differ in value. In support of

their contention, the respondents cite Polyvinyl Alcohol From Taiwan:

Final Results of Antidumping Duty Administrative Review, 63 FR 32810,

32815 (June 16, 1998) (PVA from Taiwan), in which the Department

determined that the production costs for two co-products were properly

allocated based on the relative sales value of the two co-products. In

the present case, the respondents claim that the sales value of

Calibre's non-subject merchandise is significantly higher than the

sales value of its subject merchandise. The respondents base this claim

on a comparison of the respondents' POR-average unit price of the

subject merchandise to the 1998 U.S. import values of the non-subject

merchandise. Given the greater revenue-generating power of non-subject

merchandise, the respondents assert that it is more appropriate to

allocate costs based on value. Accordingly, the respondents argue that

the Department should allocate Calibre's overhead costs between subject

and non-subject merchandise based on the relative raw material input

value.

The petitioner maintains that the Department's allocation

methodology is supported by record evidence, and is based on sound cost

accounting principles. In particular, the petitioner points to a

February 16, 1999, letter placed on the record from an FMC Corporation

official supporting the use of relative raw material consumption

amounts as an allocation basis. The petitioner further argues that

Calibre's subject and non-subject merchandise cannot be considered co-

products. The petitioner, citing PVA from Taiwan, notes that co-

products are ``produced simultaneously up to a point, after which they

become separated from one another.'' 61 FR 14064, 14071. In this case,

the petitioner claims, Calibre's non-subject products require different

raw materials than the subject merchandise, and, therefore, the

products cannot be commingled during production. Therefore, the

petitioner concludes by asserting that a value-based allocation

methodology is inappropriate with respect to Calibre's overhead costs.

According to the petitioner, the most common basis for allocating

costs between products that are not co-products is machine hours,

direct labor hours, production volume, or raw material input

quantities. In this case, the petitioner observes, among these factors,

the only information available in Calibre's financials statements is

the raw material input quantities. Therefore, the petitioner submits

that the Department's allocation of Calibre's overhead expenses based

on raw material input quantity is the only reasonable way to allocate

costs in this case.

DOC Position

Calibre's financial statements do not contain sufficient

information for us to determine whether the company's non-subject

products are co-products in the production process of persulfates. The

Department's regulations, however, provide generally that, in

determining the appropriate method for allocating costs among products,

we ``may take into account production quantities, relative sales

values, and other quantitative and qualitative factors associated with

the manufacture and sales of the subject merchandise.'' See 19 CFR

351.407(c). In this case, Calibre's factory overhead costs to be

allocated include depreciation costs, consumable stores, repairs and

maintenance costs, and other manufacturing overheads. These types of

overhead items are associated with the production volume of each

product and, as such, can be measured either by the relative raw

material input quantities or the output quantity of each finished

product. Calibre's financial statements do not provide the relative

production quantity of each finished product, but do provide the

relative raw material input usage. Accordingly, given the data

available from Calibre's financial statements, we find that relative

raw material input usage provides the most reasonable and accurate

basis to allocate overhead costs between Calibre's products.

Comment 4: Calculating Factory Overhead as a Percentage of Material,

Labor, and Energy Costs

The respondents contend that the Department improperly calculated

the surrogate factory overhead ratio by dividing Calibre's overhead

expenses by material costs only. The respondents state that the

Department's established practice in this regard is to divide the

surrogate company's overhead costs by the cost of materials, labor, and

energy. This methodology, the respondents argue, is based on the

fundamental understanding that overhead costs relate to more than just

material costs, but also to labor and energy costs. According to the

respondents, the relative raw material consumption quantities, which

the Department used to allocate Calibre's overhead expenses between its

subject and non-subject merchandise, can also be applied to Calibre's

labor and energy costs in order to calculate a denominator inclusive of

material, labor, and energy costs.

The petitioner counters that there is no information available upon

which to allocate Calibre's labor and energy costs among the company's

finished products. The petitioner points out that Calibre's financial

statements do not identify the labor expenses or electricity usage for

each finished product. Accordingly, the petitioner submits that the

methodology used by the Department provides the most accurate

calculation possible of the overhead costs incurred for the production

of persulfates.

DOC Position

We disagree with the respondents that our calculation methodology

with respect to the surrogate factory overhead ratio is improper or

distorted. Although the respondents are correct that the Department's

standard methodology of calculating overhead expenses is to divide the

total factory overhead expenses by the total material, energy and labor

costs, the Department has the discretion to adopt alternative

approaches of calculating factory overhead, SG&A and profit ratios

depending on the specific facts of the case. See, e.g., Manganese Metal

From

[[Page 69499]]

the People's Republic of China: Final Results of Second Antidumping

Administrative Review, 64 FR 49447, 49456 (September 13, 1999), in

which the Department derived labor-exclusive surrogate overhead and

SG&A percentages. In this review, as explained in our Preliminary

Results, we determined that because of the differing cost structures

between Calibre's production of subject and non-subject merchandise, it

was more appropriate first to allocate Calibre's overhead expenses

between its product lines. Given the available data in Calibre's

financial statements and information on the record, we determined that

raw material input quantity is the most accurate basis to allocate

overhead expenses. Specifically, we defined overhead as a percentage of

Calibre's raw material costs. We then applied this ratio directly to

the raw material costs that we calculated based on AJ Works' reported

factors of production. Based on the foregoing, we maintain that our

preliminary results calculation of the factory overhead rate provides

the most reasonable methodology based on the information on the record.

With respect to labor and energy costs, however, there is no

information available from which to allocate these costs among the

company's finished products, and, hence, no way to use labor and energy

costs along with material costs in order to calculate overhead.

Calculation of SG&A Expenses

Comment 5: Appropriate Indian Surrogate Company

For purposes of the preliminary results, we based SG&A expenses on

Calibre's financial data and calculated the expenses as a percentage of

total cost of manufacturing, in accordance with the Department's

standard methodology. The petitioner argues that Calibre's SG&A data is

unreliable because it cannot be viewed as representative of the

operations of AJ Works. The petitioner bases its argument on two

grounds. First, the petitioner claims that, as with factory overhead

costs, Calibre's dissimilar cost structure between subject and non-

subject merchandise distorts the company's SG&A expenses, when

calculated using the Department's traditional methodology.

Specifically, the petitioner asserts that an allocation of SG&A

expenses on the basis of Calibre's cost of manufacturing would

overstate the amount of the SG&A expenses attributed to non-subject

merchandise due to the fact that the majority of Calibre's cost of

manufacturing is made up of raw materials costs for non-subject

merchandise. The petitioner observes that there is no reasonable basis

upon which to allocate the total SG&A expenses between persulfates and

non-subject merchandise because, by their nature, SG&A expenses are

unrelated to the immediate manufacturing process and any allocation

methodology is wholly arbitrary.

The petitioner further notes that in a market economy case it does

not matter that the respondent may manufacture a variety of diverse

products because the SG&A factor is based on the actual expenses

incurred by the market economy respondent. In a non-market economy

case, however, the petitioner asserts that the SG&A factor is based on

the SG&A experience of a surrogate company whose operations may not

accurately reflect those of the NME producer, and that such a situation

applies to this administrative review.

Second, the petitioner claims that Calibre's SG&A rate, when

compared to other representative benchmark rates, demonstrates that

Calibre's data grossly understate the SG&A rate for persulfates

production. Specifically, the petitioner makes a comparison of

Calibre's data to both the SG&A data of National Peroxide, an Indian

producer of comparable merchandise that the Department relied upon in

the original investigation, and to the SG&A data of the Indian

chemicals and metals industry as reflected in the Reserve Bank of India

Bulletin (RBI) data.

Accordingly, based on the foregoing reasons, the petitioner submits

that we should reject Calibre's SG&A data and rely upon National

Peroxide's SG&A data as the most accurate surrogate value available in

this review. The petitioner cites a number of past cases in support of

its position that the Department has wide discretion in the selection

of surrogate values, including using a mix of financial data of two

different surrogate companies.

The respondents counter that the petitioner failed to provide any

legal or factual support for its argument that Calibre's data is

unreliable. As a legal matter, the respondents emphasize that the

Department's NME practice establishes a clear preference for selecting

surrogate value sources that are producers of subject merchandise. The

respondents argue that it would only be necessary to use data from a

surrogate producer of comparable merchandise if the data of the

surrogate producer of the identical merchandise is incomplete,

distorted, or not contemporaneous. In this instance, the respondents

assert that the petitioner has not demonstrated that Calibre's data is

incomplete or distorted for purpose of calculating the surrogate SG&A

expense ratio. Therefore, the respondents urge the Department to reject

the petitioner's argument and continue to rely upon Calibre's SG&A

data.

DOC Position

We disagree with the petitioner that Calibre's financial data is

inappropriate for purposes of calculating a surrogate SG&A ratio.

First, we address the petitioner's assertion that Calibre's SG&A data

is distorted because it overstates the amount of the SG&A expenses

attributed to non-subject merchandise and understates the amount

attributed to subject merchandise. As the petitioner notes, in market-

economy cases, the Department's long-standing practice with respect to

allocating general expenses to individual products is to calculate a

rate by dividing the company's general expenses by its total cost of

sales, as reported in the respondent's audited financial statements.

See the Department's standard Section D Cost of Production and

Constructed Value questionnaire at page D-17. This method recognizes

general expenses are costs that relate to the company's overall

operations, rather than to the operations of a division within the

company or to a single product line. See Final Determinations of Sales

at Less Than Fair Value: Certain Hot-Rolled Carbon Steel Flat Products,

Certain Cold-Rolled Carbon Steel Flat Products, and Certain Corrosion-

Resistant Carbon Steel Flat Products From Japan, 58 FR 37154, 37166

(July 9, 1993); and Notice of Final Determination of Sales at Less Than

Fair Value: Stainless Steel Wire Rod From Sweden, 63 FR 40449, 40459

(July 29, 1998). Although this proceeding involves a non-market economy

country, the immediate issue at hand involves deriving an SG&A ratio

using the financial data of a market-economy company. Unlike factory

overhead costs, SG&A expenses are not considered to be directly related

to the production of merchandise. In fact, in most cases, general

expenses are so indirectly related to a particular production process

that the most reasonable allocation basis is the company's total cost

of manufacturing. Thus, while it is appropriate to allocate the factory

overhead costs between subject and non-subject merchandise on a basis

other than cost, we find no basis to allocate SG&A expenses to specific

product lines on any other basis.

While we recognize that Calibre's financial data does not mirror

the actual experience of AJ Works, this does not

[[Page 69500]]

render Calibre's data unreliable for purposes of calculating a

surrogate SG&A ratio within the context of the Department's NME

methodology. As discussed above under comments 1 and 2, ``[t]he

Department normally bases normal value completely on factor values from

a surrogate country on the premise that the actual experience in the

NME cannot meaningfully be considered.'' See TRBs from Romania, 61 FR

at 51429. Therefore, with respect to overhead and SG&A surrogate

values, the Department does not tailor the values to match the

circumstances of the PRC producer. Accordingly, the fact that Calibre's

financial data may not reflect AJ Works' actual experience provides no

basis to conclude that Calibre's data is unreliable.

In this case, we have on the record three different sources for

valuing factory overhead, SG&A and profit ratios: the financial

statements of Calibre, the financial statements of National Peroxide,

and the RBI data. In the less-than-fair-value (LTFV) proceeding, the

Department rejected RBI data as a basis for surrogate values and,

instead, used the financial data of National Peroxide. We determined

that, in the absence of data from a surrogate producer that produced

merchandise that was identical to persulfates, it was necessary to use

data of a surrogate producer that produced comparable merchandise. In

the instant review, we have on the record the financial statements of

an Indian persulfates producer. As the respondents note, the

Department's NME practice establishes a preference for selecting

surrogate value sources that are producers of identical merchandise,

provided that the surrogate data is not distorted or otherwise

unreliable. For the reasons discussed above, we do not find Calibre's

data distorted or otherwise unreliable.

With respect to the cases cited by the petitioner, we note that

with the exception of Beryllium Metal and High Beryllium Alloys From

the Republic of Kazakstan, 62 FR 2648 (January 17, 1997) (Beryllium

Metal From Kazakstan), none of the cases involved relying on multiple

sources for factory overhead, SG&A and profit ratios. In Beryllium

Metal From Kazakstan, we calculated SG&A and profit ratios based on

financial data from the primary surrogate country, Peru. With respect

to overhead, we relied on financial data from a producer in Brazil

because there was a lack of detailed overhead cost data from Peru. In

the instant review, Calibre's financial statements provide sufficient

detailed data for us to calculate an SG&A ratio in accordance with our

normal methodology.

The petitioner proposes that we value factory overhead and profit

based on Calibre's financial statements, but value SG&A expenses based

on National Peroxide's financial statements. We find this approach to

be inappropriate and unwarranted. A company's profit amount is a

function of its total expenses. Using Calibre's financial data for

factory overhead and profit, then using National Peroxide's data for

SG&A, as proposed by the petitioner, results in applying a profit ratio

that bears no relationship to the overhead and SG&A ratios. In

addition, the petitioner's approach increases the potential for double-

counting or under-counting of expenses because different companies may

classify expenses differently.

Accordingly, based on the foregoing considerations, we conclude

that, in the instant review, Calibre's financial data provides the best

available information with respect to surrogate values for factory

overhead, SG&A and profit ratios. Therefore, for purposes of these

final results, we have continued to rely upon Calibre's financials for

these values.

Comment 6: Understatement of SG&A Expenses

The petitioner argues that for purposes of the preliminary results,

the Department understated SG&A expenses by omitting wages and salaries

of selling and administrative personnel. The petitioner observes that

Indian companies generally include the total salaries and wages for all

labor (i.e., direct and indirect production labor and SG&A labor) in

one expense category (``Employment Costs''), separate and apart from

SG&A expenses. According to the petitioner, because the SG&A factor the

Department used for purposes of the preliminary results did not include

any portion of the ``Employment Costs'' category, we failed to include

any costs for selling and administrative personnel in the calculation.

For purposes of the final results, the petitioner argues that we should

estimate the number of hours for selling and administrative personnel

at Ai Jian and Wuxi and increase the SG&A expenses by multiplying the

estimated hours for each company by the hourly wage rate.

The respondents object to the petitioner's argument by first noting

that in our preliminary results, we included cost categories for

``service and jobwork expenses,'' ``directors'' remuneration,'' and

``professional charges'' from Calibre's data as part of SG&A expenses.

The respondents continue by stating that, contrary to the petitioner's

claim, categories listed under ``Employment Costs'' relate to direct

and indirect labor costs associated with the production of merchandise

and do not include SG&A labor. Moreover, the respondents argue that the

petitioner's proposed methodology would double-count SG&A labor.

Accordingly, the respondents urge the Department to reject the

petitioner's argument.

DOC Position

We agree with the respondents. Based on our review of Calibre's

financial statements, while we find that categories listed under

``Employment Costs'' relate to direct and indirect labor costs

associated with the production of merchandise, there is no information

to indicate that these categories also include SG&A labor costs. As the

respondents note, we included cost categories for ``service and jobwork

expenses,'' ``directors'' remuneration,'' ``professional charges,''

``selling expenses,'' and ``administrative overheads'' in SG&A

expenses. In order for us to compute SG&A labor hours as a separate

element of factors of production, as proposed by the petitioner, it

would be necessary to derive SG&A expenses from Calibre's financial

data exclusive of all labor components. Given the lack of sufficient

detailed data, we are not able to break out labor costs from Calibre's

SG&A expense categories. Accordingly, we did not calculate SG&A labor

hours as a separate component in our factors of production calculation.

Rather, we are making a reasonable assumption that SG&A labor is

included in the surrogate SG&A ratio.

Comment 7: Depreciation Expenses

The respondents argue that for purposes of the preliminary results,

the Department improperly included all depreciation expenses as part of

factory overhead without allocating a portion of the expenses to SG&A.

According to the respondents, Department practice mandates that

depreciation costs be allocated according to the function and value of

the assets, and only depreciation costs that are attributable to assets

related to manufacturing costs may be allocated to factory overhead. At

a minimum, the respondents assert that the Department should allocate

depreciation costs for ``Residential Building'' and ``Furniture and

Fixtures'' to SG&A and a portion of the costs for ``Computers'' and

``Vehicles'' to SG&A.

The petitioner asserts that the record evidence does not include

any information that would allow the

[[Page 69501]]

Department to allocate depreciation costs as suggested by the

respondents. Thus, the petitioner states that the Department should

classify all expenses in question as manufacturing expenses and include

them in factory overhead.

DOC Position

We agree with the respondents that depreciation costs should be

allocated between factory overhead and SG&A based on the value and

function of the assets, in accordance with Department practice. See

e.g., Tapered Roller Bearings and Parts Thereof, Finished and

Unfinished, from the People's Republic of China, 62 FR 6189 (February

11, 1997). Calibre's financial statements contain a breakdown of the

total depreciation costs for fiscal year 1998. Based on this

information, we classified each expense category as either overhead or

SG&A for purposes of these final results. Where it was unclear whether

an expense would be more properly categorized as overhead rather than

SG&A (i.e., ``Computers'' and ``Vehicles''), we allocated the expense

amount evenly between the two categories. With respect to fiscal year

1997 depreciation costs, Calibre's financial statements do not provide

a breakdown of the total amount. Therefore, we allocated the total

costs between overhead and SG&A based on the percentage of total costs

allocated to each category for fiscal year 1998. See the Factors

Memorandum for detailed analysis.

Comment 8: Reclassifying ``Service and Jobwork'' Expenses

The respondents claim that the Department improperly classified

``Service and Jobwork'' expenses as SG&A expenses. According to the

respondents, the reference to ``jobwork'' identifies these expenses as

related to subcontracting labor expenses that should be considered as

part of direct manufacturing labor costs, rather than as SG&A expenses.

The petitioner submits that because Calibre's financial statements

do not describe the type of expenses that are included in the line item

``Service and Jobwork'' expenses, it is within the Department's

discretion to classify these expenses on the basis of the best

information available. The petitioner suggests that it is much more

likely that these expenses relate primarily to auxiliary manufacturing

services rather than to contract labor hired to assist in the

production of merchandise. Accordingly, the petitioner states that the

Department should continue to include these expenses in SG&A.

DOC Position

We disagree with the respondents. As noted by the petitioner,

Calibre's financial statements do not provide a description of the type

of expenses that are included in the ``Service and Jobwork'' expenses

line item. Therefore, there is no basis to conclude that these expenses

represent labor costs directly associated with the production of

merchandise. Moreover, as noted by both the petitioner and respondents

under comment 6 above, it appears that direct and indirect labor costs

related to production are separately reported under ``Employment

Costs'' in Calibre's financial statements. Therefore, because the

``Service and Jobwork'' expenses line item is listed as a separate

category, and not under ``Employment Costs,'' we conclude that we

properly treated these expenses as SG&A.

Comment 9: Scrap Income

The respondents claim that the Department erroneously applied

Calibre's sale of scrap as an offset to its cost of manufacturing in

the calculation of SG&A ratio. According to the respondents, the

Department's practice is to apply an offset for scrap only when the

respondent claims an offset for scrap. Given that the respondents in

this review did not receive scrap revenue, the respondents assert that

it would be inappropriate for the Department to attribute scrap revenue

from the surrogate Indian producer to the data reported by the

respondents.

The petitioner did not comment on this issue.

DOC Position

We disagree with the respondents and have continued to include

Calibre's sales of scrap as an offset to its cost of manufacturing for

purposes of deriving a surrogate SG&A ratio. The Department's practice

is to treat scrap sales as a reduction in cost of manufacturing. See

e.g., Notice of Final Determination of Sales at Less Than Fair Value:

Certain Preserved Mushrooms from the People's Republic of China, 63 FR

72255 (December 31, 1998). While AJ Works had no scrap sales and did

not claim an offset for scrap, this is irrelevant to our calculation of

a surrogate SG&A ratio. Calibre did receive revenue from sale of scrap

materials, and this revenue is an offset to its cost of manufacturing.

Therefore, in calculating Calibre's SG&A ratio as a percentage of its

cost of manufacturing, we need to include all revenues and expenses

that affect its cost of manufacturing. Accordingly, we have continued

to offset Calibre's cost of manufacturing with the scrap revenue

amount. As noted above under Comment 5, in calculating surrogate

overhead and SG&A ratios, we consider all components of the surrogate

company's manufacturing and general expenses without tailoring them to

match the circumstances of the NME producer. See e.g., TRBs from the

PRC, 63 FR at 63853.

Comment 10: Indirect Labor

The petitioner contends that the Department, for purposes of the

preliminary results, failed to include indirect labor hours in the

calculation of normal value. According to the petitioner, because the

surrogate Indian company's financial statements do not include salaries

or wages for indirect workers in the factory overhead expenses, the

Department needs to include AJ Works' total indirect labor hours as a

factor of production. The petitioner further asserts that AJ Works

under-reported the number of indirect labor hours in the factors of

production data submitted to the Department. Accordingly, the

petitioner argues that the Department should increase the reported

number of indirect hours to account for all of the indirect workers

reported by AJ Works using the methodology proposed in its case brief.

The respondents rebut that the Department correctly included the

factory's indirect labor hours in the calculation of normal value. The

respondents further state that, contrary to the petitioner's claim, the

Department found no discrepancies at verification concerning its

reported indirect labor hours.

DOC Position

We agree with the petitioner that we erred in the preliminary

results calculations by not including indirect labor hours in the

factors of production calculation. We further agree with the petitioner

that based on our review of information on the record, the number of

indirect labor hours AJ Works reported in its factors of production

table understates the total number of indirect labor hours involved in

the production of subject merchandise during the POR. Specifically, AJ

Works, in its November 19, 1998, Section D response, stated that it

reported indirect labor hours associated with ``inventory maintenance''

in the factors of production table. In its February 4, 1999,

supplemental Section D response, AJ Works provided a list of all

divisions in the factory and the corresponding number of employees in

each division. Our review of this list indicates that AJ Works omitted

labor hours for certain

[[Page 69502]]

employees indirectly related to the production of subject merchandise,

such as quality control, technology and energy department personnel.

Therefore, for purposes of the final results, we increased the number

of indirect labor hours based on information AJ Works provided in its

supplemental Section D response and included the revised per-unit

indirect labor hour in our calculation of normal value. See the

Calculation Memorandum for a detailed analysis.

Comment 11: Separate Rates

The petitioner submitted for the record a copy of a Circular issued

by the Chinese Communist Party on January 14, 1997, entitled ``Notice

of the Communist Party of China Central Committee on Reinforcing and

Improving Party Building in the State-Owned Enterprises'' (The

Circular). Citing excerpts from The Circular, the petitioner claims

that The Circular expressly imposes Communist Party control over, among

other things, decisions regarding the selection of management and

decisions concerning the disposition of proceeds of export sales and

profits. Accordingly, the petitioner claims, the Department should, on

the basis of The Circular, presume de facto state control over state

enterprises and apply a single country-wide rate to the respondents in

this proceeding.

The respondents counter that the petitioner fails to demonstrate

how The Circular demonstrates de facto control of any of the

respondents in this review. The respondents argue that they have

substantiated their claim of de facto independence from the central

Chinese government and demonstrated that they are unaffected by the

provisions of The Circular. Accordingly, the respondents request the

Department to reject the petitioner's argument.

DOC Position

We disagree with the petitioner. We note that the petitioner

submitted The Circular on the record of the LTFV investigation of

persulfates from the PRC, covering the period January through June

1996, and requested that the Department revisit its policy regarding

separate rates. For purposes of the final determination, the Department

stated that ``* * * it is not clear that [The Circular] nullifies or

amends any laws or regulations that grant operational independence to

exporters, or that it will result in de facto government control over

export activities of [state-owned exporters] at some time,'' and

determined that Ai Jian and Wuxi merited separate rates.

In the instant review, we found that the two exporters subject to

review operate independently with respect to exports. Specifically, we

found that (1) export prices are not set by or subject to government

control; (2) company officials have the authority to negotiate and sign

contracts; (3) each company has control over disposition of foreign

currency earned from export sales; and (4) each company has autonomy

from the government regarding the selection of management (see the

Sales Verification Report for Ai Jian and Wuxi, dated June 24, 1999).

Therefore, because the evidence on the record of this review

demonstrates an absence of government control, both in law and in fact,

with respect to the respondents' export activities, we have continued

to assign both Ai Jian and Wuxi separate rates.

Comment 12: Chemical Prices

The petitioner argues that the Department overstated the excise and

sales taxes deducted from prices published in Chemical Weekly due to an

incorrect calculation, which results in an understatement of the

surrogate values for these inputs.

The respondents agree with the petitioner.

DOC Position

We agree. We have made the appropriate corrections for purposes of

the final results.

Final Results of the Review

As a result of our analysis of the comments we received, we have

made changes to our analysis. We determine the following weighted-

average margins existed for the period December 27, 1996, through June

30, 1998:

------------------------------------------------------------------------

Margin

Manufacturer/Exporter (percent)

------------------------------------------------------------------------

Shanghai Ai Jian Import & Export Corporation............... 5.41

Sinochem Jiangsu Wuxi Import & Export Corporation.......... 7.18

------------------------------------------------------------------------

Assessment Rates

The Department shall determine and the Customs Service shall assess

antidumping duties on all appropriate entries. The Department will

issue appropriate appraisement instructions directly to the Customs

Service upon completion of this review. The final results of this

review shall be the basis for the assessment of antidumping duties on

entries of merchandise covered by this review and for future deposits

of estimated duties. For assessment purposes, we do not have the

information to calculate an estimated entered value. Accordingly, we

have calculated importer-specific duty assessment rates for the

merchandise by aggregating the dumping margins calculated for all U.S.

sales on an importer-specific basis and dividing this amount by the

total quantity of those sales. This rate will be assessed uniformly on

all entries of that particular importer made during the POR.

Furthermore, the following deposit requirements will be effective

upon publication of this notice of final results of this antidumping

duty administrative review for all shipments of the subject merchandise

entered, or withdrawn from warehouse, for consumption on or after the

publication date, as provided by section 751(a)(1) of the Act: (1) The

cash deposit rate for each reviewed company will be the rate indicated

above; (2) the cash deposit rate for Guangdong Petroleum will continue

to be 34.97 percent, the company-specific rate from the LTFV

investigation; (3) the cash deposit rate for all other PRC exporters

will continue to be 119.02 percent, the PRC-wide rate established in

the LTFV investigation; and (4) the cash deposit rate for non-PRC

exporters of subject merchandise from the PRC will be the rate

applicable to the PRC supplier of that exporter. These deposit

requirements shall remain in effect until publication of the final

results of the next administrative review.

Notification of Interested Parties

This notice serves as a final reminder to importers of their

responsibility under 19 CFR 351.402(f) to file a certificate regarding

the reimbursement of antidumping duties prior to liquidation of the

relevant entries during this review period. Failure to comply with this

requirement could result in the Secretary's presumption that

reimbursement of antidumping duties occurred and the subsequent

assessment of double antidumping duties.

This notice also serves as the only reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with section 351.306 of the Department's regulations.

Timely notification of return/destruction of APO materials or

conversion to judicial protective order is hereby requested. Failure to

comply with the regulations and the terms of an APO is a sanctionable

violation.

This administrative review is issued and published in accordance

with

[[Page 69503]]

sections 751(a)(1) and 777(i)(1) of the Act.

Dated: December 6, 1999.

Richard W. Moreland,

Acting Assistant Secretary for Import Administration.

[FR Doc. 99-32225 Filed 12-10-99; 8:45 am]

BILLING CODE 3510-DS-P