65 FR 69284 November 16, 2000
                                                 A-580-843
                                                 Investigation
                                                 Public Document
                                                 GRP II Off. 5: DL/DO

MEMORANDUM 

DATE: November 8, 2000

TO:   Joseph A. Spetrini
      Acting Assistant Secretary 
      for Import Administration

FROM: Holly A. Kuga 
      Acting Deputy Assistant Secretary, Group II
      Import Administration


SUBJECT: Decision Memorandum for the Final Determination in the
         Antidumping Duty Investigation of Expandable Polystyrene 
         Resins From the Republic of Korea 

Summary

We have analyzed the comments in the case and rebuttal briefs submitted
by interested parties in the antidumping duty investigation of expandable
polystyrene resins from the Republic of Korea. As a result of our
analysis, we have made changes in the margin calculations. We recommend
that you approve the positions we have developed in the Discussion of
Issues section of this memorandum. Below is the complete list of the
issues in this investigation for which we received comments from the
parties.

List of Comments in the Issues and Decision Memorandum

GENERAL ISSUES 

Comment 1: Allegations of Mexican Transshipments

Comment 2: Using Monthly Averaging Groups in Place of Annual Averages to
           Calculate Normal Value 


II. ISSUES SPECIFIC TO CHEIL INDUSTRIES, INC. (Cheil)

Comment 3: Constructed Export Price Offset

Comment 4: Duty Drawback

Comment 5: Credit Expense - Home Market Interest Rate

Comment 6: Reclassification of Certain Sales from Constructed Export
           Price to Export Price

           Effect of AK Steel Corporation v. United States, 2000 App. 
           LEXIS 22911 (Fed. Cir. Sept. 12, 2000) 

           Resellers in Question Are Not Affiliated with Cheil 

           Transactions with Resellers are Sales 

           Cheil's Unaffiliated "Commissionaires" Are Distributors 

           If Certain Sales are Reclassified as Export Price, They 
           Should Be Treated as a Separate Price-Averaging Group 

Comment 7: General & Administrative Expense 

Comment 8: Inclusion of Import Duties in the Cost of Manufacture 


III. ISSUES SPECIFIC TO SHINHO PETROCHEMICAL CO. LTD. (Shinho)


Comment 9: Credit Expense

Comment 10: Gain on Foreign Currency Translation.


BACKGROUND

On June 26, 2000, the Department of Commerce (the Department) published
its preliminary determination in the antidumping investigation of
expandable polystyrene resin (EPS) from the Republic of Korea (Korea). The
period of investigation (POI) is October 1, 1998, through September 30,
1999. Respondents in this investigation are Cheil and Shinho. We invited
parties to comment on the preliminary determination. No party requested a
public hearing.(1)

SCOPE OF INVESTIGATION

For purposes of this investigation, the products covered include certain
EPS in primary forms; namely, raw material or resin manufactured in the
form of polystyrene beads, whether of regular (shape) type or modified
(block) type, regardless of specification, having a weighted-average
molecular weight of between 160,000 and 260,000, containing from 3 to 7
percent blowing agents, and having bead sizes ranging from 0.4 mm to 3 mm.
Specifically, excluded from the scope of this investigation are off-grade,
off-specification EPS. The covered merchandise is found in the Harmonized
Tariff Schedule of the United States (HTSUS) subheading 3903.11.00.00.
Although this HTSUS subheading is provided for convenience and customs
purposes, the written description of the merchandise is dispositive. 


DISCUSSION OF ISSUES

GENERAL ISSUES 

Comment 1: Allegations of Mexican Transshipments

With a reference to a submission of September 18, 2000,(2) the
petitioners reiterate their contention that a very large amount of Korean-
manufactured EPS has been exported to Mexico and subsequently reexported
to the United States under an erroneous country-of-origin designation. The
petitioners base their contention on what they have determined to be a
"gross inconsistency between official Mexican export data for EPS and
official U.S. import data for EPS," and on sworn affidavits presented in
the September 18, 2000, submission. The petitioners assert that because
evidence on the record is not yet sufficient for the purposes of assigning
responsibility for the mischaracterized shipments - and thus for
determining whether the integrity of any of the reported databases have
been undermined - the Department should request entry summaries from U.S.
Customs on an expedited basis for all POI shipments of EPS from Mexico. In
this regard, the petitioners identify three scenarios which they consider
to be open issues for the instant investigation.

Were transshipments made by some other Korean producer/exporter or
consignee of the merchandise? 

In light of the Samsung America, Inc. (SAI) deliveries (identified in
the Cheil verifications) to Mexico, did certain companies in Mexico re-
export this merchandise to the United States? 

Considering the fact that the Samsung Group has several production
entities in northern Mexico which manufacture electronic devices, and
which are themselves likely end users of the merchandise, are these
companies placing material in inventory in Mexico and selling that
merchandise in the United States? 

The petitioners note that under none of these scenarios would SAI possess
the relevant documents. They argue that U.S. Customs entry summaries for
shipments of EPS from Mexico should enable the Department to determine the
source of the imports. They state that, should the customs documents
reveal that respondents or their affiliates have transhipped EPS, the
Department should resort to adverse inferences to protect the integrity of
the investigative process.

Shinho references its submission of September 26, 2000, in which it
argues it did not know if any of its EPS sold to Mexico was subsequently
resold in the United States, and asserts that the petitioners presented no
credible evidence that any such transshipments took place.

Cheil argues that the Department established at both the Korean and CEP
verifications that any sales Cheil made to Mexican customers were made
through SAI, and that there were no diversions of EPS sales by Cheil
through Mexico. Cheil questions the timeliness of the petitioners' request
and states that the Department would be within its rights to reject the
petitioners' request on this basis.

DOC Position: We find that we have addressed the petitioners' concern
regarding transshipment to the extent it pertains to the instant
investigation. Our verification of the completeness of reported POI sales
for both Shinho and Cheil yielded no evidence that either company had
transshipped EPS through Mexico, or any other third country, to the United
States.(3) Following our normal procedures at the Korean verifications,
even before the petitioner had raised this issue, we examined both
companies' third-country exports in some detail, which included the
identification of purchasers in third countries.(4) We took further steps
to test the validity of Cheil's database during our verification of SAI,
Cheil's U.S. affiliate, through which Cheil makes all of its Mexican
sales.(5) Our examination of SAI's Mexican sales records revealed no
irregularities, reconfirming the Department's finding in Korea that all
sales to Mexico were made to unaffiliated customers.(6) As a further test,
we examined purchases made by SAI's plastics section, which is responsible
for sales and purchases of EPS, and found no purchases from Mexico. 

The September 18, 2000, submission suggests that some Korean-origin EPS
may be transshipped through Mexico. We have independently examined entry
data for shipments of EPS from Mexico, including an examination of the
line-item U.S. Customs Service (Customs) entry database, and a review of
entry documents from various ports most often used for Mexican shipments.
We have not found any indication that EPS is being transhipped based on
our investigation of Customs data and our verification findings. Because
this matter falls under the purview of Customs, at the time we requested
entry documents from Customs, we discussed the petitioners' concerns with
Customs officials. With regard to the instant investigation, we have no
evidence that the respondents have presented incomplete sales databases or
that they have knowingly transshipped their merchandise through a third
country. 

As noted above, we have referred this matter to Customs. We reserve the
right to reopen this investigation should a Customs investigation reveal
that the respondents fraudulently failed to report sales of EPS in the
United States during the POI that were transhipped through Mexico. See
e.g., Ferrosilicon From Brazil, Kazakhstan, People's Republic of China,
Russia, Ukraine, and Venezuela, Notice of Rescission of Antidumping Duty
Orders on Ferrosilicon from Brazil, Kazakhstan, People's Republic of
China, Russia, Ukraine, and Venezuela, Rescission of Countervailing Duty
Order on Ferrosilicon from Venezuela, and Termination of Administrative
Reviews of Ferrosilicon from Brazil, the People's Republic of China, and
Venezuela, 64 FR 51097 (September 21, 1999) (where the Department
rescinded the orders on ferrosilicon based upon the ITC's reconsideration
of its material injury determination where the ITC made its decision after
learning that certain domestic producers plead guilty or had been found
guilty of conspiring to fix domestic ferrosilicon prices during the
periods of the original investigations); see also Ferrosilicon from
Brazil, China, Kazakhstan, Russia, Ukraine, and Venezuela, Inv. Nos. 303-
TA-566-570 and 731-TA-641 (Reconsideration), USITC Pub. 3218, at 3-4
(August 24, 1999). 

Comment 2: Using Monthly Averaging Groups in Place of Annual Averages to
Calculate Normal Value 

The petitioners argue that the Department should base its price-to-price
comparisons for each respondent on monthly averaging groups as was done in
Notice of Final Determination of Sales at Less Than Fair Value: Stainless
Steel Round Wire from Korea, 64 FR 17342 (April 9, 1999), Comment 1 (Round
Wire) and Notice of Final Determination of Sales at Less Than Fair Value:
Stainless Steel Plate in Coils from Korea, 64 FR 15444, 15452 (March 31,
1999) (Coils). The petitioners note that in the preliminary determination,
the Department averaged normal value and export prices over the entire
POI. The petitioners claim that annual averaging ignored the normal value
change(s) during the POI.(7) The petitioners assert that the Department's
practice is to use shorter averaging periods than the POI when normal
value (NV), export price (EP), or constructed export price (CEP) varies
significantly over the POI. Furthermore, the petitioners note that in such
cases, reliance on annual averages can mask dumping margins.(8) Therefore,
the petitioners argue, due to the changes in NV during the POI, the
Department should, in the final determination, employ monthly averaging
periods in order to provide for accurate and undistorted price-to-price
comparisons.

Both Shinho and Cheil challenge the validity of the petitioners' claim
that there was any significant fluctuation in home market prices during
the POI. Citing 19 CFR 351.414(d), Shinho asserts that the Department's
general practice is to calculate weighted averages for the entire POI, and
notes that the Department has only deviated from this practice when NV,
EP, or CEP differ significantly over the course of the POI, at which time
the Department may calculate weighted averages for such shorter periods as
the Department deems appropriate. Shinho states that its NV did not vary
significantly during the POI. Shinho claims that its changes in home
market prices fell short of the level that the Department has considered
to be significant enough to invoke separate averaging methods. Similarly,
Cheil asserts that its home market prices were relatively stable
throughout the POI and that the Department should rely on its normal
averaging methodology. 

DOC Position: Pursuant to 19 CFR 351.414 (d), we will calculate weighted
averages for shorter periods of time if the NV, EP, or CEP differ
significantly over the course of the POI or period of review. We
acknowledge that the petitioners have provided us with two previous cases
where the Department did use monthly averaging groups. However, in both
Round Wire and Coils the Department used different averaging periods
because the NV in the last two months of each of the POI's differed
significantly from the NV earlier in the POI due to a significant change
in the value of the dollar versus the won. This significant change was
evidenced by a precipitous drop in the won's value, which continued over
the course of the POI. The fact patterns of Round Wire and Coils are not
applicable to the instant case because neither respondent: 1) has
experienced continuous significant changes throughout the POI; and 2)
Korea was not experiencing significant exchange rate fluctuations during
the POI. Rather, the fact pattern in the instant case more closely
resembles that found in Notice of Final Determination of Sales at Less
Than Fair Value: Certain Polyester Fiber from the Republic of Korea, 65 FR
16880 (March 30, 2000), where, while average monthly prices were higher at
the beginning of the POI than at the end, the Department determined that
there was no "significant and consistent price decline during the POI." In
the instant case, average monthly prices were lower at the beginning of
the POI than at the end. However, for most months of the POI there were
insignificant price changes. Furthermore, we found that there were month-
to-month price increases as well as decreases during the POI, indicating
no consistent pattern of price changes. Therefore, for the final
determination, we have continued to calculate weighted averages for the
entire POI.


ISSUES SPECIFIC TO CHEIL 

Comment 3: Constructed Export Price Offset

According to the petitioner, though granted in the preliminary
determination, the Department should deny a CEP offset to Cheil for
purposes of the final determination. The petitioners contend that while
the Department made the prerequisite determination in its level-of-trade
(LOT) analysis that "Cheil's sales to end-users in the home market and the
end users/commissionaires in the U.S. market appear to be made at distinct
points of the chain of distribution,"(9) the Department failed to explain
how it identified these different points of the distribution chain. 

The petitioners also argue that while the Department based the LOT for
CEP transactions on constructed sales, the LOT identified in the home
market was based on unadjusted transactions. The petitioners assert that
the Department's "use of different starting points for CEP and home market
sales led inexorably to the Department's determination to grant Cheil a
CEP offset."(10) They contend that instead of adjusted constructed sale
prices, the Department should have based its LOT determination on
unadjusted starting prices to the end user.

Cheil argues that the Department's LOT analysis in the preliminary
determination was consistent with the Department's past practice and with
the Act. Cheil emphasizes that the use of constructed sales for analyzing
CEP LOTs is required under the Department's regulations, noting that
section 351.412(c)(ii) specifically states that for CEP, the Department
"will identify the level of trade based on . . . the starting price, as
adjusted under section 772(d) of the Act." Citing Static Random Access
Memory Semiconductors from Taiwan; Final Results and Partial Rescission of
Antidumping Duty Administrative Review, 65 FR 55005 (September 12, 2000)
(SRAMs), Cheil argues that the Department has recently stated that it has
consistently adhered to the practice of using constructed sales "in every
case" when analyzing LOT.(11) Cheil maintains that the NTN Bearings Corp.
of Am. v. United States, 104 F.Supp.2d 110, 131(CIT 2000) (NTN Bearings
Corp.) decision specifically upheld the practice of using adjusted sales
for CEP LOT analysis.

Cheil also disputes the petitioners' contention that the Department
failed to explain its preliminary finding that Cheil's home market and CEP
sales were made at different points in the chain of distribution, arguing
that precedent has shown that the mere reference to the fact that the
Department has examined "customers" and "distribution channels" was
sufficient.(12) 

DOC Position: We disagree with the petitioners' assertion that we failed
to explain with sufficient clarity how we identified the different points
in the chain of distribution for home market and CEP sales on which we
based our LOT analysis. We stated explicitly which LOT we would use for
each type of transaction and, in the case of CEP sales, said that "the LOT
is the level of the constructed sale."(13) In our company-specific LOT
analysis for Cheil, we made specific references to the different selling
functions related to home market and U.S. sales.(14) We also identified
the types of customers we considered in our analysis as the petitioners
have recognized ("end users in the home market" and "the
importers/commissionaires in the U.S. market). These references, combined
with our explanation of the Department's standard CEP methodology,
demonstrate how we identified the points in the distribution chain that we
would use to determine whether the home market sales were at a more
advanced stage of marketing. The NV LOT was based on actual direct sales
from Cheil to its domestic customers. For the LOT of CEP transactions, we
considered the constructed sales made from Cheil to U.S. importers. These
are the constructed sales to the "independent distributors" or
"importer/commissionaires," which we identify as a result of our 772(d)
adjustments.(15) Having established the LOT, we made a determination that
the NV sales are more advanced than the constructed sales based on a
clearly delineated analysis of the selling functions.(16) The petitioners,
even if they disagree with our methodology, demonstrate, in their other
arguments on determining LOT, an understanding of how we have applied it
and, therefore, based on our clear references to customer types and
selling functions, should understand how we identified the distinct points
in the distribution chains for the respective markets.

Regarding the petitioners' contention that our use of constructed sales
for purposes of determining the LOT of CEP transactions was contrary to
law, we recognize that the CIT has held that the Department's practice of
determining LOTs for CEP transactions after CEP deductions is an
impermissible interpretation of section 772(d) of the Act. See Borden, 4
F. Supp. 2d at 1241- 1242. The Department believes, however, that its
practice is in full compliance with the statute. On June 4, 1999, the CIT
entered a final judgement in Borden on the LOT issue. See Borden, Inc., v.
United States, Court No. 96-08-01970, Slip Op. 99-50 (CIT June 4, 1999).
The government has filed an appeal of Borden which is pending before the
U.S. Court of Appeals for the Federal Circuit (CAFC). Consequently, the
Department has continued to follow its normal practice of adjusting CEP
under section 772(d) of the Act prior to starting a LOT analysis, as
articulated in the Department's regulations. See CFR 19 section 351.412.

We note that the recent NTN Bearings Corp. of Am., et al v. United
States, 104 F.Supp.2d 110 (CIT 2000) (NTN Bearing Corp.) decision supports
the Department's practice of using the CEP as adjusted under section
772(d) of the Act prior to starting a LOT analysis. In NTN Bearing Corp.,
NTN argued that the Department improperly denied a price-based LOT
adjustment under 1677(a)(7)(A) for CEP sales because the Department did
not base NTN's CEP LOT on the sale to the first unaffiliated purchaser.
NTN claimed that this meant using the unadjusted starting price. NTN cited
to the first Borden decision in support of its argument. The CIT did not
accept NTN's argument that an unadjusted price should be used and
explicitly declined to follow the rationale of Borden.(17) 

The Department has consistently stated that the Act and the SAA support
analyzing the LOT of CEP sales at the constructed level, after expenses
associated with economic activities occurring in the United States have
been deducted pursuant to section 772(d) of the Act. In the preamble to
its proposed regulations, the Department stated:

With respect to the identification of levels of trade, some commentators
argued that, consistent with past practice, the Department should base
level of trade on the starting price for both EP and CEP sales. The
Department believes that this proposal is not supported by the SAA. If the
starting price is used for all U.S. sales, the Department's ability to
make meaningful comparisons at the same level of trade (or appropriate
adjustments for differences in levels of trade) would be severely
undermined in cases involving CEP sales. As noted by other commentators,
using the starting price to determine the level of trade of both types of
U.S. sales would result in a finding of different levels of trade for an
EP sale and a CEP sale adjusted to a price that reflected the same selling
functions. Accordingly, the regulations specify that the level of trade
analyzed for EP sales is that of the starting price, and for CEP sales it
is the constructed level of trade of the price after the deduction of U.S.
selling expenses and profit.

See Antidumping Duties; Countervailing Duties; Notice of Proposed Rule
Making and Request for Public Comments, 61 FR 7308, 7347 (February 27,
1996).

Consistent with the above position, in those cases where a LOT comparison
is warranted and possible, the Department evaluates the LOT for CEP sales
based on the price after adjustments are made under section 772(d) of the
Act. See, e.g., Large Newspaper Printing Presses and Components Thereof,
Whether Assembled of Unassembled, From Japan: Notice of Final
Determination of Sales at Less Than Fair Value, 61 FR 38139, 38143 (July
23, 1996). We note that in every case decided under the revised
antidumping statute, the Department has consistently adhered to this
interpretation of the SAA and of the Act. See, e.g., Extruded Rubber
Thread From Malaysia; Final Results of Antidumping Duty Administrative
Review, 65 FR 6140, 6141 (February 8, 2000); Notice of Final Determination
of Sales at Less Than Fair Value: Dynamic Random Access Memory
Semiconductors of One Megabit and Above (DRAMs) from Taiwan, 64 FR 56308,
56313 (October 19, 1999); Antifriction Bearings (Other Than Tapered Roller
Bearings) and Parts Thereof from France, Germany, Italy, Japan, Singapore,
and the United Kingdom; Final Results of Antidumping Duty Administrative
Reviews, 62 FR 2081, 2106 (January 15, 1997); Aramid Fiber Formed of Poly
Para-Phenylene Terephthalamide from the Netherlands; Final Results of
Antidumping Administrative Review, 61 FR 51406, 51408 (October 2, 1996);
and SRAMS, 65 FR 55005, (September 12, 2000).

In the instant case, we determined that all of Cheil's sales through SAI
were CEP transactions, and for those sales the constructed LOT should be
used. We verified the differences in selling functions performed in making
sales to the foreign and the U.S. markets, after all selling expenses
incurred in the United States were deducted from the starting price.

As stated in the SAA, a CEP offset adjustment will be made only where: 1)
the data available do not form an appropriate basis for determining a LOT
adjustment under section 773(a)(7)(A)(ii) of the Act; and 2) NV is
established at a LOT more remote from the factory than the LOT of the CEP
transaction. Because we find that only one LOT existed in the home market
during the POI, we are unable to make a LOT adjustment under section
773(a)(7)(A)(ii) of the Act. See Preliminary Determination, 65 FR at
39354. Moreover, because NV is based on a price which reflects full
selling activities, while the CEP after adjustment is based on a price
which reflects few selling activities by Cheil, we find that the NV is at
a LOT more remote from the factory than the LOT of the CEP. Accordingly,
we find that our decision to grant a CEP offset to Cheil is consistent
with the statute, and that this decision is supported by substantial
evidence on the record. Consequently, consistent with our preliminary
determination, we have continued to analyze the LOT based on adjusted CEP
prices, rather than the starting CEP prices, and we have continued to
grant a CEP offset to Cheil for its sales through SAI for purposes of the
final determination. 

Comment 4: Duty Drawback

The petitioners argue that Cheil's method of allocating duty drawback to
U.S. sales and as a billing adjustment in certain home market "L/C
sales"(18) is inherently distortive. The petitioners note that Cheil has
reported that it may apply for duty drawback by matching any export permit
to any import permit for raw materials within a two-year window and, for
that reason, Cheil is unable to measure duty drawback on an actual sale-by-
sale basis. The petitioners argue that Cheil has arbitrarily allocated
different proportions of its overall duty drawback received from U.S.
exports and from the domestic L/C sales, with the effect of skewing the
margin calculation. The petitioners cite Certain Polyester Staple Fiber:
Notice of Final Determination of Sales at Less Than Fair Value 65 FR 16880
(March 30, 2000) (Polyester Staple Fiber), in which the Department
rejected a respondent's allocation of duty drawback between the U.S. and
the Canadian exports based on Department's determination that "there
appears to be significantly less duty drawback assigned to its reported
third country sales."(19) The petitioners note that in Polyester Staple
Fiber, the Department allocated the total reported duty drawback for U.S.
and Canadian shipments during the POI over the total volume of those
exports. The petitioners argue that, in the instant case, the Department
should reallocate Cheil's duty drawback adjustments for U.S. exports and
for the L/C sales in the same fashion, and calculate a single average duty
drawback amount based on the combined amounts for these two types of sales.

Cheil responds that it reported duty drawback, as verified, in a manner
consistent with the Department's reporting requirements. Cheil observes
that, because its procedures for receiving duty drawback on direct export
sales differs from procedures for receiving duty drawback-related billing
adjustments on certain domestic sales, it maintains separate records, in
the normal course of business, for duty drawback received on direct
exports and revenue from home market sales linked to customers' duty
drawback. Finally, Cheil notes that it has been the Department's
consistent practice to accept duty drawback reported as averages when it
was not practicable to report duty drawback on a more specific basis.(20)
Cheil states that the Department specifically reviewed and confirmed that,
based on the Korean system, Cheil was unable to report duty drawback on a
transaction-specific basis. Cheil also states that the Department
confirmed that Cheil's procedures for receiving duty drawback on direct
export sales differed from its procedures for receiving tax remission from
certain domestic sales. Cheil maintains that it demonstrated to the
Department how it was able to report separate average per-metric ton duty
drawback amounts based on the separate records for the two types of sales. 

Cheil rejects the petitioner's position that duty drawback should be
reported as a single average per-metric ton duty drawback amount for both
types of sales. Cheil argues that the petitioner's reliance on Polyester
Staple Fiber to argue for a single average was misplaced. Cheil notes that
in that case, the respondent had the same procedures for receiving duty
drawback from its direct exports to the United States and to Canada, in
contrast to the separate procedures that Cheil has for receiving duty
drawback on direct exports and on certain domestic L/C sales. Cheil
asserts that its separate records for duty drawback received from direct
exports and certain domestic sales has enabled it to report more specific
duty drawback amounts for each type of sale then would be the case with
the single average proposed by the petitioners. 

DOC Position: An upward adjustment to the U.S. sales price for duty
drawback is provided for in section 772(c)(1)(B) of the Act. The
Department utilizes a two-prong test to determine whether a party is
entitled to a duty drawback adjustment: 1) the import duty and rebate must
be directly linked to, and dependent upon, one another; and 2) the company
claiming the adjustment must demonstrate that there were sufficient
imports of imported raw materials to account for the duty drawback
received on exports of the manufactured products. See, e.g., Silicon Metal
from Brazil: Notice of Final Results of Antidumping Duty Administrative
Review, 64 FR 6305, 6318 (February 9, 1999). This test was in Far East
Machinery Co. v. United States, 699 F. Supp. 309, 311 (CIT 1988). 

The CIT has consistently held that there is no requirement that a
specific input be traced from importation through exportation before
allowing drawback on duties paid.(21) The only limit on the allowance for
duty drawback is that the adjustment to U.S. sales price may not exceed
the amount of import duty actually paid.(22) 

Cheil satisfied both prongs of the aforementioned test and was therefore
entitled to claim a duty drawback adjustment for its U.S. sales. Cheil's
duty drawback rebates are received under Korea's individual application
system, which limits such rebates to actual duties paid. Duty drawback was
reviewed at verification, and no inconsistencies with Cheil's reported
methodology were noted.(23) 

At verification we were able to confirm that the reported average amount
of duty drawback received on direct exports was accurately reflected in
Cheil's accounting records. Where Cheil reported billing adjustments on
domestic L/C sales we have allowed those adjustments to Cheil's reported
prices. 

In considering the petitioners' comments that separate averages for duty
drawback received on direct exports and for the revenue received from L/C
sales as a billing adjustment are distortive, we consider it important to
distinguish, as Cheil has done, between duty drawback that Cheil collects
for its own exports of EPS and the upward price adjustment on certain
domestic sales for which Cheil's customers receive duty drawback when they
subsequently export the EPS as an input in their own product. Based on the
facts of this case, we have not changed the amount of the home market
price adjustment or the duty drawback allowance for U.S. sales.

Comment 5: Credit Expense - Home Market Interest Rate

The petitioners argue that the Department should use dollar interest
rates to calculate the imputed credit expense for certain Cheil home
market sales that were denominated in dollars.

Cheil counters that the Department was correct in the preliminary
determination when it applied the Korean won interest rate to determine
credit expenses for home market L/C sales denominated in U.S. dollars.
Cheil notes that, although these particular home market sales are
denominated in dollars, and Cheil reported them as such in accordance with
the Department's instructions, the related selling expenses for these
sales are incurred in won. Cheil calculated the credit expense for these
dollar-denominated sales by converting the dollar amount to a won amount
based on the won exchange rate on the date of sale, and then applying the
same won interest rate-based credit formula it used to calculate the
credit expense for all home market sales. 

Cheil further states that if the Department determines that a U.S.
interest rate should apply to some of Cheil's home market L/C sales, it
should only apply the dollar interest rate credit expense to those sales
denominated in U.S. dollars.

DOC Position: We agree with the petitioners that the credit expense
calculation for Cheil's dollar-denominated sales should be based on a U.S.
dollar interest rate. It is the Department's normal practice to base its
imputed credit calculation on interest rates for the currency in which a
given sale is denominated, since the imputed credit expense measures the
opportunity cost of payment foregone in that particular currency.(24)
Cheil correctly reported in won certain other selling expenses incurred in
won. However, if the sales price is denominated in dollars, the credit
expense should be measured in dollars. Therefore, for the final
determination, we have applied a dollar interest rate based on Cheil's
actual short term borrowings in our calculation of imputed credit expense
for those L/C sales that are denominated in dollars.

Comment 6: Reclassification of Certain Sales from Constructed Export
Price to Export Price

Cheil contends that the Department must reclassify sales that were
reported as sales made through unaffiliated "commissionaires" to end users
from CEP sales to EP transactions on the basis of the following
arguments:(25)

Under the recent CAFC decision AK Steel Corporation v. United States (AK
Steel),(26) the Department no longer has the discretion to determine
whether a sale was either an EP or a CEP transaction outside of what the
Court has defined as the plain meaning of the statute. According to AK
Steel, the plain meaning of the statute dictates that a sale between a
producer/exporter and an unaffiliated U.S. purchaser must be classified as
an EP transaction. 

The record evidence verified by the Department clearly established that
the U.S. customers in question were not affiliated with Cheil. 

The record evidence verified by the Department confirms that the
transactions between Cheil and the U.S. customers in question constituted
"sales." 

Effect of AK Steel Corporation v. United States, 2000 App. LEXIS 22911
(Fed. Cir. Sept. 12, 2000) 

Cheil cites the CAFC's conclusion in AK Steel that "Commerce looks to the
first sale to a purchaser that is not affiliated with the producer or
exporter. If the producer or exporter sells directly to the U.S.
purchaser, that sale is used because it is considered an arm's length
transaction. In that situation the sale is classified as EP."(27) Cheil
finds that the Court reiterates this point when it states that sales to
unaffiliated purchasers can only fall under one of two classifications:
"1) between an unaffiliated U.S. purchaser and the producer or exporter,
and thus EP; or 2) between the unaffiliated U.S. purchaser and another
entity in the United States that must, by definition, be related to the
producer, and thus CEP."(28) Cheil notes that in AK Steel the Court does
not discuss the requirement that a respondent show that the sale or
agreement to sell takes place "outside the United States." To Cheil, this
suggests that once it has been established that a producer or exporter has
sold the merchandise directly to an unaffiliated purchaser, the Court
assumes that the sale has taken place "outside the United States." Cheil
states that although a showing that the sale took place "outside the
United States" may not be required in these instances, it has satisfied
this requirement in the case of the sales which it wants reclassified as
EP.

Resellers in Question Are Not Affiliated with Cheil 

Cheil asserts that the fact that the customers in question were not
affiliated with Cheil has never been disputed. Cheil states that the
Department reviewed Cheil's relationships and sales processes with these
companies at verification and established that these customers were
"extremely large, diversified distributors of styrenic chemicals, that
they had multiple office locations around the world and that they have
multiple sources of supply."(29) Cheil states that for EPS specifically,
the Department verified that one of the resellers in question had several
sources, including one of the petitioners in the proceeding. Thus, Cheil
argues that "it is inconceivable that these companies could even be deemed
affiliated by virtue of close customer-supplier relationship."(30)

Transactions with Resellers are Sales 

Cheil supports its contention that the record as verified confirms that
the transactions between Cheil and the companies were "sales" on the basis
of the terms of sales that were verified by the Department. Cheil argues
in its brief that, in accordance with U.S. Customs Service and
international customs authority (INCOTERM) regulations, the terms of sale
show that "there was a transfer of ownership which occurred upon Cheil's
delivery of merchandise to the port in Korea." In addition, Cheil states
that the Department verified that it was the unaffiliated resellers, and
not these resellers' ultimate end-user customers, who paid Cheil for the
merchandise. Cheil also maintains that it was clarified at verification
that the resellers, and not Cheil, negotiate terms of the sales with the
resellers' ultimate end-user customers. 

Cheil's Unaffiliated "Commissionaires" Are Distributors 

Cheil concludes that, despite its references to the customers in question
as "commissionaires," they are, as described in the Department's
verification report, specialized distributors of styrenic material and
fibers."(31) Cheil argues on this basis that sales to these customers
should be treated no differently than sales to Cheil's unaffiliated
distributor in the United States (which were classified as EP sales in the
preliminary determination).

If Certain Sales are Reclassified as EP, They Should Be Treated as a
Separate Price-Averaging Group 

The petitioners do not dispute Cheil's contention that certain sales,
previously identified as "commissionaire" sales, should be reclassified as
EP transactions; however, the petitioners argue that if these sales are
reclassified as EP sales, the Department should utilize a separate export
price-averaging group for the reclassified group of transactions for
comparison to NV. In other words, the petitioners do not want the
Department to average these reclassified transactions in a single group
with the distributor sales that are already treated as EP at the same LOT.
In requesting a separate price-averaging group for reclassified
transactions, the petitioners make the following arguments:

The SAA(32) and regulations provide that the Department may decide to
utilize a separate price-averaging group based on differences in customer
type, among other criteria. 

By Cheil's own admission in its response, the sales which Cheil would
have reclassified as EP are made to a different class of customer than the
distributor sales which were already treated as EP transactions in the
preliminary determination. 

The petitioners cite Notice of Final Determination of Sales at Less Than
Fair Value: Static Random Access Memory Semiconductors from Taiwan, 63 FR
8909 (LTFV Final February 23, 1998) (SRAMs) as precedent for establishing
separate price-averaging groups, based on "consistent and uniform
differences in prices between customer types." 

The petitioners cite the SAA discussion of criteria the Department will
consider to establish averaging groups:

To ensure that these averages are meaningful, Commerce will calculate
averages for comparable sales of subject merchandise to the U.S. and sales
of foreign like products. In determining the comparability of sales for
purposes of inclusion in a particular average, Commerce will consider
factors it deems appropriate, such as the physical characteristics of the
merchandise, the region of the country in which the merchandise is sold,
the time period, and the class of customer involved. 

SAA at 842. The petitioners note that these criteria are recapitulated in
19 CFR 351.414(d).

The petitioners contend that Cheil has admitted that the transactions in
question went to a "distinct class of customer." To underline this point,
the petitioners cite Cheil's assertion that "{i}ndeed, the Department
verified that these customers were extremely large, diversified
distributors of styrenic chemicals, that they had multiple office
locations around the world and that they have multiple sources of
supply."(33) The petitioners highlight the fact that Cheil itself
originally stated in its response that, "{f}or U.S. sales, the sales were
made either to unaffiliated U.S. distributors (U.S. sales channel 2) or to
unaffiliated U.S. end users through U.S. commissionaires (U.S. Sales
Channel 3)."(34) The petitioners also identify substantial differences in
the selling activities that Cheil performs for distributors and end users
(i.e., for the transactions involving unaffiliated resellers previously
identified as commissionaires that Cheil wants reclassified). These
differences involve arrangement of freight and warranty services. 

The petitioners cite the 1998 final determination for static random
access memory semiconductors from Taiwan, in which the Department
considered a separate price-averaging group based on "customer type."(35)
The petitioners claim that in that case the Department stated that "{i}n
order to determine whether we should base price-averaging groups on
customer types, we conducted an analysis of the prices submitted by the
respondents." (36) The petitioners suggest that Cheil has admitted that
there was a "consistent and uniform difference" in prices between customer
types in question ("distributor" and "commissionaire") when it stated in
its response that "{g}enerally speaking, however, in the U.S. market,
sales prices to end users through commissionaires are higher than sales to
distributors, because prices to end users include the amount of the
commission."(37) 

DOC Position: We agree with Cheil that certain sales to unaffiliated
resellers that were treated as CEP transactions in the preliminary
determination should be reclassified as EP sales. The record evidence as
verified indicates that the sales in question are made outside the United
States to unaffiliated U.S. resellers and, therefore, these sales must be
reclassified as EP sales.

Our reassessment of the sales in question is due in large part to the
clarification of the record at verification, as indicated in Cheil's
arguments. Based upon our verification, we established that there were
actually two types of the so-called "commissionaire" sales, in contrast to
our earlier understanding that these sales constituted one separate
channel of distribution. The two types of commissionaire are as follows:

Sales through SAI - We have established that SAI, for purposes of our
dumping analysis, is an affiliate of Cheil based in the United States. For
sales made through SAI, Cheil negotiates the terms of the sale directly
with the first unaffiliated U.S. customers.(38) Once the terms are
negotiated, SAI accepts and confirms the purchase order. SAI subsequently
invoices the unaffiliated customer and collects payment from this
customer, and the goods are transferred to the customer.(39) Therefore, we
find that the first sale to an "unaffiliated purchaser" occurs in the
United States and was made by SAI. Based on this fact pattern, we will
continue to treat Cheil sales through SAI as CEP transactions pursuant to
section 772(b) of the Act.

Sales to unaffiliated resellers previously identified as
"commissionaires" - These are the sales which we have determined should be
reclassified as EP transactions. We have established on the record that
the resellers in question are large independent distributors with multiple
sources of supply. We have also determined that these companies, unlike
SAI, negotiate their own EPS sales with end users, and that Cheil is not
involved in that process as we previously believed to be the case.
Consequently, pursuant to section 772(a) of the Act, we are reclassifying
these sales as EP transactions. 

We do not agree with the petitioners' argument that we utilize one price-
averaging group for the sales to resellers which we have decided to
reclassify as EP, and another averaging group for distributor sales that
we already treated as EP in the preliminary determination. In making their
argument, the petitioners highlight Cheil's admission that there are
general price differences between those specific distributor sales and
sales to end users which include a "commission." When we consider the
unaffiliated "commissionaire" sales as EP transactions, we look at the
sale from Cheil to the unaffiliated reseller, and not at the reseller's
sale to its customer, which includes the so-called "commission" which we
established at verification is simply a mark-up that the unaffiliated
resellers charge to their customers.(40) We have determined that the
unaffiliated resellers in question are in fact the same type of customer
as Cheil's other distributors in the EP group.(41) The single-averaging
group which we are utilizing for our EP sales comparison, as provided in
section 351.414(d)(1) of the Department's regulations, consists of
virtually identical subject merchandise that is sold to the United States
at the same LOT in conformity with section 351.414(d)(2) of the
regulations. We have identified no distinctions among Cheil's EP
transactions that would require a subdivision of the single-averaging
group that we are using. We note that, in SRAMs, the Department analyzed
differences in prices by customer type and decided that there were not
consistent and uniform differences in prices and that we would not use
specific price-averaging groups for different customer types.(42) In the
instant investigation, we have determined that within the EP group, all of
the customers are independent distributors. Thus, we do not have a
customer type distinction to consider.

Comment 7: General & Administrative Expense 

Cheil argues that for the final determination, the Department should use
Cheil's chemical division general & administrative expense (G&A) ratio, as
opposed to a company-wide G&A ratio. Cheil points out that the statute
(see section 773(f)(1)(A)of the Act) directs the Department to use a
respondent's normal books and records if such records are maintained in
accordance with generally accepted accounting principles (GAAP) in the
exporting country and reasonably reflect the cost of the product under
consideration. According to Cheil, its accounting system is maintained in
accordance with Korean GAAP, and under this system Cheil accounts
separately for the G&A expenses incurred by each of its four divisions.
Cheil contends that its reported G&A ratio reasonably reflects the costs
of the product under consideration because it includes both company-wide
and divisional expenses particular to EPS. While Cheil acknowledges that
it is the Department's normal practice to calculate a company-wide G&A
ratio, Cheil cites to the Final Determination of Sales at Less Than Fair
Value: Furfuryl Alcohol from South Africa, 60 FR 22550, 22556 (May 8,
1995) (Furfuryl Alcohol)to support its contention that the Department used
a divisional G&A methodology in the past when the respondent provided case-
specific facts that clearly support a departure from the Department's
normal practice. Cheil argues that in a number of recent proceedings where
the respondents did not maintain specific divisional accounts in the
general ledger, or failed to provide specific reasons why their
methodology was more reasonable than the Department's, the Department did
not use divisional G&A ratios.

Cheil states that it has established both that it maintains separate
accounting records for its chemical division, and that the use of a
company-wide G&A rate is not reasonable because of the distortive effect
of the high G&A ratios of the textile and fashion divisions. Cheil further
suggests, citing Final Results of Antidumping Duty Administrative Review:
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From The United
Kingdom, 60 FR 44009, 44012 (August 24, 1995) (Certain Hot-Rolled Steel
Products From the UK), that if the Department determines to use a company-
wide G&A ratio, it must exclude from the calculation certain expenses
unrelated to the merchandise under consideration, as well as certain items
which are accounted for as G&A under Cheil's normal accounting system, but
are in fact selling expenses related to non-subject merchandise. 

Cheil notes that it did in fact calculate its G&A expense rate on a
company-wide basis. According to Cheil, its reported G&A ratio reflects a
multi-tiered approach. That is, a combination of G&A expenses incurred for
the company as a whole, i.e., the corporate service division G&A expenses,
and G&A expenses incurred directly by the chemical division. Cheil
contends that, while the corporate service division provides
administrative services that benefit the company's three separate
divisions, G&A expenses incurred at the chemical division level benefit
only that division and, with the exception of the corporate service
division, no other division recognizes in its accounts the expenses of
other divisions. 

The petitioners, citing Notice of Final Determination of Sales at Less
Than Fair Value: Stainless Steel Round Wire from Canada, 64 FR 17324,
17325 (April 9, 1999) (Stainless Steel Round Wire from Canada), argue that
it is the Department's normal methodology that G&A calculations reflect
the company as a whole rather than discrete portions of the company. Since
Cheil did not report G&A on a company-wide basis, the petitioners argue,
the Department should correct this calculation for the final
determination. 

DOC Position: The antidumping law does not prescribe a specific method
for calculating the G&A expense rate. When a statute is silent or
ambiguous, the determination of a reasonable and appropriate method is
left to the discretion of the Department. Because there is no bright-line
definition in the Act of what a G&A expense is or how the G&A expense rate
should be calculated, the Department has, over time, developed a
consistent and predictable practice for calculating and allocating G&A
expenses. This consistent and predictable method is to calculate the rate
based on the company-wide G&A costs incurred by the producing company
allocated over the producing company's company-wide cost of sales and not
on a divisional or product-specific basis. See Stainless Steel Round Wire
from Canada at 17325; see also Notice of Final Determination of Sales at
Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel Products
From Japan, 64 FR 24329, 24354 (May 6, 1999). This practice is identified
in the Department's standard section D questionnaire, which instructs that
the G&A expense rate should be calculated as the ratio of total company-
wide G&A expenses divided by cost of goods sold. See section D
questionnaire, page D-13. This approach is consistent with Korean GAAP's
treatment of such period costs and recognizes the general nature of these
expenses and the fact that they relate to the activities of the company as
a whole rather than to a particular production process. The Department's
methodology also avoids any distortions that may result if, for business
reasons, greater amounts of company-wide general expenses are allocated
disproportionally between divisions. 

Like many cost allocation issues that arise during the course of an
antidumping proceeding, there may be more than one way to reasonably
allocate the costs at issue. This is precisely why we have developed a
consistent and predictable approach to allocating G&A costs. The
Department's normal methodology for calculating a respondent's G&A expense
ratio is reasonable, it is predictable and not results-oriented. To allow
a respondent to choose between the Department's normal method and an
alternative method simply because the outcome of one method is a lower
rate would encourage respondents to adopt a results-oriented approach.
That is, parties will only point out the other methods, as Cheil has, when
it benefits them. Cheil's argument that its company-wide G&A rate is
unreasonable simply because the rates assigned to other divisions are
higher is unpersuasive. If the costs Cheil identified as divisional G&A
expenses only relate to the products of that division, they may be more
accurately accounted for as part of the cost of manufacturing of that
merchandise and not G&A costs. However, Cheil did not report these costs
as part of its company-wide cost of manufacturing in its audited financial
statements. In addition, we note that the Furfuryl Alcohol determination
cited by Cheil dates from 1995. The Department's calculation of G&A
expenses in Furfuryl Alcohol was specific to the facts of that case (the
specific details are proprietary). Since Furfuryl Alcohol, the Department
has consistently followed its normal practice of not allowing divisional
G&A and calculating company-wide G&A. Therefore, we continue to find that
Cheil's costs are general in nature and relate to the operations of the
company as a whole. Accordingly, we computed Cheil's G&A expense rate in
accordance with the Department's normal practice on a company-wide basis.

Regarding Cheil's comment that if we use company-wide G&A, we should
exclude certain expenses unrelated to the cost of production for the
merchandise under investigation, we note that, in developing the company-
wide G&A rate, we have excluded certain selling and other expenses because
these costs do not relate to the cost of production. See Memorandum from
Ernest Gziryan and Taija Slaughter to Neal Halper: Cost of Production and
Constructed Value Calculation Adjustments for the Final Determination;
Antidumping Duty Investigation of Expandable Polystyrene Resins From the
South Korea (November 8, 2000), Attachment 1.

Comment 8: Inclusion of Import Duties in the Cost of Manufacture 

Cheil contends that, consistent with the Department's practice, the
Department should exclude from the COP all import duties incurred on
purchases of styrene monomer. Citing Final Results of Antidumping Duty
Administrative Review of Solid Urea From the Former German Democratic
Republic, 62 FR 61271, 61273 (November 17, 1997) (Solid Urea From
Germany), Cheil argues that a party's costs should reflect the actual
expenses incurred, and accordingly, if a party receives benefits that are
linked to specific costs, the benefits should offset those costs. Cheil
claims that because its customers pay for the import duties on the
imported raw materials, the Department should exclude all import duties
incurred on its purchases of styrene monomer. In the event that the
Department does not exclude all import duties incurred, Cheil urges the
Department, at a minimum, to exclude the verified amount of duties
refunded to Cheil at the time of verification.

The petitioners argue that the entire amount of the import duties should
be added back to Cheil's material cost in order to parallel the upward
adjustment of U.S. sales prices for duty drawback and inclusion of the
duties in home market prices. The petitioners contend that, if the
Department determines to correct material cost for refunded import duties,
it should, at a minimum, take into account the fact that only a portion of
the duties incurred by Cheil were refunded during the POI. Citing
Stainless Steel Bar From India and Camargo Correa Metais, S.A. v. United
States, Slip. Op. 98-152, (CIT 1998), the petitioners state that, if the
Department deducts the import duties from Cheil's material cost, it should
deny the duty drawback adjustment to U.S. price. 

DOC Position: We agree with the petitioners. The cases cited by Cheil are
unsupportive in that the income and expense items at issue in those
proceedings were unrelated to the issue of duties and duty drawback. It is
the Department's practice to offset the actual costs with the benefits
received which are linked to the specific costs. See Solid Urea From
Germany. However, the law, recognizing that this issue is common for most
of the cases, provides for a specific treatment of import duties paid and
duty drawback refunded. Section 772(c)(1)(B) of the Act requires the
Department to increase EP and CEP by the amount of any import duties
imposed by the country of exportation which have been rebated to the
company. Thus, the Department's practice to treat duty drawback as an
adjustment to the sales price and to include import duties in the cost of
direct materials is consistent with the law. See Oil Country Tubular Goods
from Korea: Final Results of Antidumping Duty Administrative Review, 64 FR
13169, 13172 (March 17, 1999); see also Notice of Final Determination of
Sales at Less Than Fair Value: Fresh Atlantic Salmon from Chile, 63 FR
31411, 31413 (June 9, 1998). 

In this case, we are adding a tax remission (linked to customers' duty
drawback) to the home market price for certain home market "L/C" sales
before running the cost test. See Comment 4 above on duty drawback. To
also include this amount as reduction in cost would result in double
counting.


ISSUES SPECIFIC TO SHINHO 

Comment 9: Credit Expense

Citing to the Department's Policy Bulletin 98.2 (1998), Shinho argues
that the Department's longstanding policy and practice is to calculate
imputed credit expense based on the respondent's borrowing experience,
when the respondent has short-term borrowing in the relevant market.(43)
Shinho mentions that as a result of its bankruptcy, it was undergoing bank-
supervised reorganization, and its outstanding short-term loans were
converted to long-term loans. Shinho states that neither it nor its lender
anticipated that the debt would be converted at the time the terms of the
loans were established. Therefore, Shinho argues that the conversion of
its debt does not effect the validity of the loans. Shinho states that the
duration of a short-term loan has never been a consideration for the
Department when calculating a short-term interest rate, so long as the
loan meets the definition of short-term, which is less than one year.(44)
Shinho further argues that the Department must use Shinho's rate unless
the criteria for using facts available are met. Shinho notes that the
Department has applied facts available mostly in situations where the loan
was from an affiliated party.(45) 

The petitioners disagree with using Shinho's actual rate because Shinho
only made payments on its short-term debt through December 31, 1998, three
months into the POI, at which time its short-term debt was converted to
long-term debt. Therefore, petitioners argue that using Shinho's interest
rates will reflect Shinho's cost of credit for only a small part of the
POI. Petitioners argue that for the final determination, the Department
should utilize, for the last nine months of the POI, the interest rates
pertaining to medium-term loans outstanding for that period, and should
utilize for the first three months of the POI the interest rates
pertaining to the short-term loans outstanding for the period. 

DOC Position: We disagree with the petitioners' argument that we should
use two different interest rates for the POI. Although Shinho's actual
short-term borrowing lasted three months out of the POI, it is the
Department's practice to calculate imputed credit expense based on the
respondent's actual borrowing experience when the respondent has short
term borrowing in the relevant market. See Policy Bulletin 98.2, "Imputed
Credit Expenses and Interest Rates" at 3 (February 23, 1998). 

For the purpose of calculating imputed credit expense, we used a short-
term interest rate in the currency in which the sales were denominated. At
verification, we determined that Shinho's interest rate was reasonable,
readily obtainable, and representative of usual commercial behavior. We
based this interest rate on the respondent's weighted-averaged short-term
borrowing experience in the currency of the transaction. See Id.
Furthermore, the fact that Shinho had only made payments using a short-
term interest rate for three months of the POI does not make the use of
the short-term interest rate unreasonable. 

At verification we found no evidence that the bank from which Shinho
obtained its short-term loan, had any knowledge of Shinho's impending
reorganization and bankruptcy. We found nothing at verification that would
suggest that Shinho's short-term loan was outside of its normal commercial
business and that the loan was not representative of Shinho's actual
borrowing rate. Accordingly, for the final determination, we used Shinho's
actual reported short-term borrowing rate because it was based on Shinho's
actual borrowing.

Comment 10: Foreign Exchange Gains and Losses

Shinho argues that it properly included an offset to interest expense for
the total foreign exchange gain related to long-term loans in its
financial expense rate calculation. Shinho asserts that in its normal
books and records, both current and long-term foreign exchange gains and
losses are recognized in the year incurred. Shinho continues that the
Department is mandated by section 773(f)(1)(A) of the Act to calculate
costs based on the respondents normal books and records if such records
are in accordance with the home country's GAAP and reasonably reflect the
costs associated with the production of subject merchandise. Therefore,
Shinho concludes that the Department must include the total foreign
exchange gain in the financial expense rate calculation. As support for
this assertion, Shinho cites Notice of Final Determination of Sales at
Less Than Fair Value: Certain Cut-To-Length Carbon-Quality Steel Plate
Products from Korea, 64 FR 73196, 73203 (December 29, 1999) (Plate from
Korea), where the Department found that "Korean GAAP provides that all
foreign exchange gains and losses related to long-term debt may be
recognized in full, in the year incurred." See Id. 

Shinho further contends that the court ruled that amortization of foreign
exchange losses distorts the financial expense rate calculation because
deferring such losses negates the matching principle between revenues and
expenses. Specifically, the court ruled in Micron v. United States, 893
F.Supp. 21, 34 (CIT 1995) that "translation losses relate directly to
events occurring during the POI, and they should not be deferred to future
periods." See Id. As such, Shinho states that the court's decision
requires the Department to include the full amount of its foreign exchange
gains in the financial expense rate calculation, not simply the gain
related to the current portion of the long-term debt. However, if the
Department were to argue that only the current portion of the foreign
exchange gains should be included in the financial expense rate
calculation, Shinho maintains that only the current portion of the foreign
exchange losses should be included.

Petitioners did not comment on this issue.

DOC Position: It is the Department's normal practice to amortize the net
foreign exchange gains and losses incurred on debt over the maturities of
the debt and include only the current portion of the net gain or loss in
the cost of production and constructed value. See, e.g., Memorandum to
Troy H. Cribb from Richard W. Moreland, Re: Issues and Decision Memorandum
for the Antidumping Duty Administrative Review on Frozen Concentrated
Orange Juice from Brazil dated October 11, 2000, and Notice of Final
Determination of Sales Less Than Fair Value: Fresh Atlantic Salmon from
Chile, 63 FR 31411, 31430 (June 9, 1998) (Salmon from Chile) (where, in
both cases, the Department included in the cost of production and
constructed value only the current portion of the foreign exchange losses
resulting from foreign-currency denominated loans as part of the financial
expenses). Therefore, we recalculated Shinho's financial expense to
include only the current portion of the net foreign exchange gains and
losses related to debt.

As noted by Shinho, the Department's long-standing practice, codified at
section 773(f)(1)(A) of the Act, is to rely on a respondent's normal books
and records when they are kept in accordance with the GAAP of the
exporting country and reasonably reflect the costs associated with the
production and sale of the merchandise. However, in those instances where
a company's normal accounting practices do not reasonably reflect the
production costs, the Department will adjust the respondent's cost or use
alternative calculation methodologies that more accurately reflect the
actual costs incurred to produce the merchandise. In this case, even
though the full amount of the exchange gain and loss related to foreign
denominated debt is recognized in Shinho's audited financial 

statements, we disagree that such treatment should be used for submission
purposes. The foreign exchange gains and losses on long-term debt reflect
amounts related to both the current and long-term portion of the debt. As
we are attempting to capture the company's cost of production in the
current investigative period, we do not consider it appropriate to pick up
that portion of the foreign exchange gain or loss which is associated with
the long-term portion of the debt. This practice regarding foreign
exchange gains and losses related to debt, which has evolved since Micron
v. United States, attempts to smooth out the impact of sharp currency
fluctuations on foreign-denominated long-term debt while recognizing that
the settlement of the debt occurs over the life of the debt. See, Final
Determination of Sales at Less Than Fair Value: Fresh Cut Roses from
Ecuador, 60 FR 7019, 7039 (February 6, 1995).


We do, however, agree with Shinho's statement that only the current
portion of both foreign exchange gains and losses should be included in
the financial expense rate calculation. All of Shinho's foreign exchange
losses are related to current assets or liabilities. Therefore, we have
only included the current portion. For the final determination, we have
amortized the net foreign exchange gains over the maturities of the debt
and included the amortized portion as an offset to interest expense in the
financial expense rate calculation.

RECOMMENDATION

Based on our analysis of the comments received, we recommend adopting all
of the above positions and adjusting all related margin calculations
accordingly. If these recommendations are accepted, we will publish the
final determination in the Federal Register. 


AGREE ____

DISAGREE ____




______________________

Joseph A. Spetrini
Acting Assistant Secretary 
  for Import Administration

______________________
(Date) 

_______________________________________________________________________
footnotes:

1. On October 13, 2000, Shinho requested that a hearing be held, but
withdrew its request on October 18, 2000. 

2. Letter from King and Spalding to the Honorable Norman Y. Mineta,
September 18, 2000, with reference to the Antidumping Investigation of
Certain Expandable Polystyrene from South Korea/ Petitioners' Rebuttal of
Shinho Petrochemicals Co., Ltd. Sales Verification Data. 

3. Memorandum to the File from Charles Riggle and Dondi Ojeda,
Verification of the Home Market and Comparison Market Sales Information in
the Response of Shinho Petrochemical Corp. in the Antidumping
Investigation of Expandable Polystyrene Resins from South Korea (September
26, 2000) ( Shinho Verification Report); Memorandum to the File from
Charles Riggle and Dondi Ojeda, Verification of the Home Market and
Comparison Market Sales Information in the Response of Cheil Industries,
Inc. in the Antidumping Investigation of Expandable Polystyrene Resins
from South Korea, (September 26, 2000) (Cheil Verification Report); and
Memorandum to Gary Taverman from David Layton, Verification of the U.S.
Sales Information in the Response of Cheil Industries, Inc. in the
Antidumping Investigation of Expandable Polystyrene Resins from South
Korea (October 5, 2000) (CEP Verification Report). 

4. See Shinho Verification Report at 3-5, see also Cheil Verification
Report at 3-6. 

5. See CEP Verification Report at 4-7. See also Cheil Verification Report
at 5-6. Our examination of the sales ledger in Korea for all exports
enabled us to establish that Cheil makes all of its Mexican sales through
SAI. 

6. Id. 

7. The petitioners cite to Notice of Preliminary Determination of Sales
at Less than Fair Value and Postponement of Final Determination: Certain
Expandable Polystrene Resins from the Republic of Korea, 65 FR 39352 (June
26, 2000) and petitioners' case brief exhibits 1 & 2. 

8. The petitioners cite to Stainless Steel Sheet and Strip in Coils from
Thailand, 64 FR 30592, 30603 (1999), where the Department employed shorter
averaging periods because NV in the last two months of the POI differed
significantly from NV earlier in the POI. 

9. Notice of Preliminary Determination of Sales at Less Than Fair Value
and Postponement of Final Determination: Certain Expandable Polystyrene
Resins from the Republic of Korea, 65 FR 39351, 39354 (June 26, 2000)
(Preliminary Determination). 

10. Petitioners' case brief at 3. 

11. See Memorandum from Richard W. Moreland to Troy H. Cribb, Issues and
Decision Memorandum for the Antidumping Duty Administrative Review of
Static Random Access Memory Semiconductors from Taiwan, October 1, 1997
through March 31, 1999, 65 FR 55005, (September 12, 2000) at Comment 13. 

12. See Memorandum from Richard W. Moreland to Robert L. LaRussa, Issues
and Decision Memorandum for the Antidumping Duty Administrative Review of
Gray Portland Cement Clinker from Mexico, August 31, 1997 through July 31,
1999, 65 FR 13943, (March 15, 2000) at Comment 4. 

13. See Preliminary Determination at 39353. 

14. See Preliminary Determination at 39354. 

15. See Preliminary Determination at 39353-39354. 

16. Id. at 39354. 

17. See NTN Bearings Corp., 131. 

18. See Cheil Section B Response, March 15, 2000 at B-15 and Cheil
Verification Report at 7. Cheil's "L/C customers" are other Korean firms
which incorporate EPS in their products and subsequently export those
products. Cheil provides these customers with certificates of import
duties that Cheil paid for EPS inputs, and invoices an estimated amount
for the anticipated duty drawback that the L/C customer will receive. The
L/C customers subsequently pay Cheil for the actual amount of duty
drawback for the EPS inputs it collects from the Korean government. 

19. See Memorandum from Susan H. Kuhbach to Richard W. Moreland, Issues
and Decision Memorandum for the Final Determination in the Anti-Dumping
Investigation of Certain Polyester Staple Fiber from Korea,, 65 FR 16880
(March 30, 2000) at Comment 12. 

20. Cheil cites e.g., Final Results of Antidumping Duty Administrative
Review; Circular Welded Non-Alloy Steel Pipe from Korea, 63 FR 32833,
32844 (June 16, 1998); Final Determination of Sales at Less Than Fair
Value: Oil Country Tubular Goods from Korea, 60 FR 33561, 33564 (June 28,
1995); Final Determination of Sales at Less Than Fair Value: Circular
Welded Non-Alloy Steel Pipe from Korea, 57 FR 42942, 42945 (Sept. 17,
1992). 

21. Laclede Steel Co. v. United States, 18 CIT 965, 972 (1994). 

22. Id. 

23. See Cheil Verification Report at 7. 

24. See Import Administration Policy Bulletin 98.2 Imputed credit
expenses and interest rates (February 23,1998); LMI-La Metalli
Industriale, S.p.A. v United States, 912 F.2nd 455, 460061 (Fed. Cir.
1990). Also see, e.g. Final Determination of Sales at Less than Fair
Value; Oil Country Tubular Goods from Austria, 60 FR 33551, 33555 (June
28, 1995). 

25. In its case brief, Cheil identifies the sales by the actual name of
the customer. Due to the proprietary nature of the customer names, in this
public document, we will refer to them as the "customers in question" or
"resellers." 

26. AK Steel Corporation v. United States, 2000 App. LEXIS 22911 (Fed.
Cir. Sept. 12, 2000) (AK Steel). 

27. Id. at * 15. 

28. Id. at * 16. 

29. Cheil case brief at 8. 

30. Id. 

31. See Sales Verification Exhibit 2. 

32. See Statement of Administrative Action (SAA), H.R. Doc. 103-316
(1994). 

33. Cheil's case brief at 8. 

34. Cheil Section A Response (March 3, 2000) at A-12. Please recall the
discussion of the respondent arguments. It is the sales to the
unaffiliated U.S. resellers previously identified as "commissionaires"
that the petitioners want treated as a distinct EP averaging group if they
are no longer classified as CEP sales. 

35. Notice of Final Determination of Sales at Less Than Fair Value:
Static Random Access Memory Semiconductors from Taiwan, 63 FR 8909, 8911
(February 23, 1998) (SRAMs). 

36. Id. 

37. Cheil Section A Response (March 3, 2000) at A-12.

38. Cheil Verification Report at 2; CEP Verification Report at 3. 

39. Id. 

40. Cheil Verification Report at 2. 

41. Id. 

42. SRAMS at 8911. 

43. See Certain Steel Concrete Reinforcing Bars from Turkey; Final
Results of Antidumping Duty Administrative Review and New Shipper Review,
64 Fed. Reg. 49150, 49155 (Sept. 10, 1999); Polyethylene Terephthalate
Film, Sheet, and Strip From the Republic of Korea; Final Results of
Antidumping Duty Administrative Review, 63 Fed. Reg. 37334, 37337 (July
10, 1998); Notice of Final Determination of Sales at Less Than Fair Value:
Certain Pasta From Turkey, 61 Fed. Reg. 30309 (June 14, 1996) (Pasta from
Turkey); Porcelain-on-Steel Cooking Ware From Mexico; Final Results of
Antidumping Duty Administrative Review, 55 Fed. Reg. 21061, 21063 (May 22,
1990); Aimcor v. United States, 141 F.3d 1098, 1111 (Fed. Cir. 1998). 

44. See Notice of Final Determination of Sales at Less than Fair Value:
Certain Cut-To-Length Carbon-Quality Steel Plate Products from Japan, 64
Fed. Reg. 73215, 73230 (Dec. 29, 1999). 

45. See Notice of Final Determination of Sales at Less Than Fair Value:
Large Newspaper Printing Presses and Components Thereof, Whether Assembled
or Unassembled, From Japan, 61 Fed. Reg. 3819, 38161 (July 23, 1996).