66 FR 58115, November 20, 2001
                                                            A-570-866
                                                        Investigation
                                                      Public Document
                                                             G1O3:TES 

MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary 
                 for Import Administration

FROM:          Richard W. Moreland
               Deputy Assistant Secretary
               AD/CVD Enforcement Group I

SUBJECT: Issues and Decision Memorandum for the Less Than Fair Value
Investigation of Certain Folding Gift Boxes from the People's Republic 
of China (PRC): June 1, 2000, through December 31, 2000

SUMMARY: 

We have analyzed the briefs and rebuttal briefs of interested parties in
the less-than-fair-value (LTFV) investigation of certain folding gift
boxes from the People's Republic of China. As a result of our analysis, we
have made changes from the Notice of Preliminary Determination of Sales at
Less Than Fair Value: Certain Folding Gift Boxes From the People's
Republic of China, 66 FR 40937 (August 6, 2001) (Preliminary
Determination). The specific calculation changes can be found in the Max
Fortune Industrial Ltd. (Max Fortune) final analysis memorandum dated
November 13, 2001, and the Red Point Paper Products Co., Ltd. (Red Point)
final analysis memorandum dated November 13, 2001. We recommend that you
approve the positions we have developed in the "Discussion of the Issues"
section of this Issues and Decision

Memorandum. Below is the complete list of the issues in this investigation:

Comment 1: Use of Facts Available for Max Fortune

Comment 2: Use of Facts Available for Red Point

Comment 3: Red Point Paperboard Prices

Comment 4: Red Point and Lindy Bowman Affiliation

Comment 5: Red Point Selling, General, and Administrative Expenses and
           Profit

Comment 6: Red Point Electricity Valuation

DISCUSSION OF THE ISSUES:

I. Changes from the Preliminary Determination 

Based on the results of verification and the comments we received from
interested parties, we have made revisions to the data used for the final
determination. For further details, please see the final analysis
memoranda for Max Fortune and for Red Point dated November 13, 2001,which
is on file in B-099 of the Central Records Room at the Department of
Commerce. These revisions are:

Red Point

1. We used the U.S. sales database that Red Point presented at the start
of verification which incorporates its pre-verification corrections. 

2. We deducted the declaration fees that Red Point incurred on U.S. sales. 

3. We used the FOP database that Red Point presented at the start of
verification which incorporates its pre-verification corrections. Because
Red Point did not include the usage for plastic tabs for certain models in
its database, we included the usages we verified for these models. 

4. We recalculated Red Point's glue usage to account for beginning
inventory in Red Point's calculation of usage of glue. 

5. We recalculated Red Point's shrink-wrap usage to account for beginning
inventory in Red Point's calculation of usage of shrink wrap. 

6. We revised Red Point's per-piece shrink-wrap weights to accord with
the weights we verified. 

7. We revised Red Point's reported carton usage to accord with the usage
we verified. 

8. We converted Red Point's reported tape usage from a per-meter to a per-
kilogram basis using a conversion factor based on information in the Red
Point verification report dated September 13, 2001, at page 12.

9. We revised Red Point's reported market-economy input costs to accord
with the costs we verified. 

10. We revised Red Point's electricity usage calculation to include the
electricity for the foil-stamping or pre-cutting processes.

11. We revised Red Point's labor usage calculation to accord with the
labor hours we verified. 

12. We have recalculated the surrogate value for electricity for Red Point.

Max Fortune

1. We used the U.S. sales database that Max Fortune submitted August 8,
2001.

2. We included an unreported billing adjustment for one invoice that we
found at verification.

3. We found at verification that Max Fortune reported out-of-scope boxes,
all of which are printed with the retailer's name. We have removed all
sales of such boxes from Max Fortune's U.S. sales database.

4. We found at verification that Max Fortune allocated its movement
expenses by dividing the expense by the standard weight and multiplying
this number by the actual weight reported in the response for each
observation. We corrected this by dividing the reported movement expenses
by the reported actual weight and multiplying it by the standard weight
for the model. 

5. We found at verification that the sum of per-unit weight and per-unit
scrap for each model of boxes incorporating duplex board exceeded the per-
unit usage of those models. We corrected this by reallocating the scrap
offset to take into account the relative scrap generated by each model. 

6. We found at verification that Max Fortune incorrectly reported that it
did not incur freight expenses for inputs of glue. We included this
freight expense when valuing the glue inputs. 

7. We revised the value of Max Fortune's market-economy inputs pursuant
to the corrections Max Fortune provided at the start of verification.

II. Company-Specific Issues: 

Comment 1: Use of Facts Available for Max Fortune

Harvard Folding Box Company and Field Container Company, LP (the
petitioners), argue that the Department should calculate Max Fortune's
margin on the basis of facts available because, at verification, the
Department found numerous inconsistencies between Max Fortune's records
and its response. The petitioners observe that the Department found at
verification that: 1) Max Fortune reported nonsubject merchandise in its
U.S. sales database, 2) there were inconsistencies in the usage of
paperboard and scrap Max Fortune reported, 3) Max Fortune did not report
freight expenses for glue inputs, and 4) Max Fortune did not report bank
charges. The petitioners contend that these inconsistencies call into
question Max Fortune's entire response.

Max Fortune argues that there are no grounds for the application of facts
available in calculating its margin. Max Fortune also contends that it has
been fully cooperative throughout the investigation, that the errors the
Department found during the verification were ministerial and can be
corrected, and that the petitioner's allegations are not true. 

Department's Position: While it is true that we found several
discrepancies during our verification of Max Fortune, these discrepancies
do not warrant discarding Max Fortune's response in its entirety. The
discrepancies we found were: 1) Max Fortune did not report a billing
adjustment for one invoice, 2) Max Fortune reported out-of-scope boxes,
all of which are printed with the retailer's name, 3) Max Fortune
allocated its movement expenses by dividing the expense by the standard
weight and multiplying this number by the actual weight reported in the
response for each observation, 4) the sum of per-unit weight and per-unit
scrap for each model of boxes that Max Fortune reported incorporating
duplex board exceeded the per-unit usage of those models, and 5) Max
Fortune reported it did not incur freight expenses for inputs of glue. See
Max Fortune verification report dated September 19, 2001. We collected
data at verification with which we can correct Max Fortune's response.
Moreover, we verified all of Max Fortune's reported sales, factors-of-
production, and market-economy input data and found no other discrepancies
beyond those noted in the verification report. See Max Fortune
verification report dated September 13, 2001, for further details. We
verified that, with the exception of these limited issues, Max Fortune's
response was an accurate reflection of its actual experience. Moreover,
the data needed to correct the response is in the verification exhibits
and we were able to correct the response without undue difficulty.
Therefore, for this final determination, we have corrected the
discrepancies we noted in our verification report and have otherwise used
the data reported by Max Fortune. 

Comment 2: Use of Facts Available for Red Point

The petitioners argue that the Department should calculate Red Point's
margin on the basis of facts available because, at verification, the
Department found numerous inconsistencies between Red Point's records and
its response. The petitioners observe that the Department found at
verification that: 1) Red Point did not report declaration fees, 2) the
Department could not tie the per-piece shrink-wrap weights from the
response to Red Point's internal records, 3) the Department could not tie
carton weights from the packing lists to Red Point's carton-usage
worksheet, 4) the Department could not tie the quantities and values of
the market-economy inputs that Red Point reported to its internal records,
5) Red Point did not include the electricity it used in its foil-stamping
or pre-cutting processes, and 6) the Department could not tie labor hours
reported by Red Point to payroll records. The petitioners contend that
these inconsistencies call into question Red Point's entire response. 

Red Point argues that there are no grounds for the application of facts
available in calculating its margin. Red Point contends that it has been
fully cooperative throughout the investigation and that the Department was
able to verify the majority of the information it submitted. Red Point
also contends that the errors the Department found were small and that the
Department has the information it needs to make any changes necessary to
Red Point's information.

Department's Position: While it is true that we found several
discrepancies during our verification of Red Point, these discrepancies do
not warrant discarding Red Point's response in its entirety. The
discrepancies we found were: 1) Red Point did not report the declaration
fees it incurred on U.S. sales, 2) Red Point did not account for beginning
inventory in its calculation of usage of glue, 3) Red Point did not
account for beginning inventory in its calculation of usage of shrink
wrap, 4) we were unable to recreate the per-piece shrink-wrap weights Red
Point reported in its July 18, 2001, submission, 5) we were unable to tie
the carton weights from the packing lists to Red Point's carton-usage
worksheet, 6) we were unable to tie the quantities and values of the
market-economy inputs that Red Point reported in its revised market-
economy inputs summary to its internal records, 7) Red Point did not
include the electricity for the foil-stamping or pre-cutting processes,
and 8) we were unable to reconcile the labor hours Red Point reported to
payroll records at the factory. See Red Point verification report dated
September 13, 2001. We collected data at verification which we used to
correct Red Point's response. Moreover, we verified all of Red Point's
reported sales, factors-of-production, and market-economy input data and
found no other discrepancies beyond those noted in the report. See Red
Point verification report dated September 13, 2001, for further details.
In other words, we found that, with the exception of these limited issues,
Red Point's response was an accurate reflection of its actual experience.
Moreover, the data we need to correct the response is in the verification
exhibits and we were able to correct the response without undue
difficulty. Therefore, for this final determination, we have corrected the
discrepancies we noted in our verification report and have otherwise used
the data reported by Red Point. 

Comment 3: Red Point Paperboard Prices 

Red Point argues that the Department should adjust its paperboard prices
to exclude a certain expense that was actually incurred outside of the
period of investigation (POI). Red Point claims that the Department
verified the nature of this expense and, citing Less Than Fair Value
Investigation of Stainless Steel Butt-Weld Pipe Fittings from Malaysia, 65
FR 81825 (December 7, 2000) and the accompanying Issues and Decision
memorandum at Comment 19, contends that the Department normally excludes
"out-of-period" costs. 

The petitioners argue that the Department should not lower the paperboard
price for this expense because it would understate the true cost of
paperboard to the respondent. Because of the proprietary nature of this
comment, the rebuttal, and our position, see Red Point's final
determination calculation memorandum dated November 13, 2001, for a
complete discussion of this issue.

Department's Position: We have not reduced Red Point's reported
paperboard costs for this expense and have, instead, relied on the prices
Red Point actually paid its suppliers. Because of the proprietary nature
of our position, see Red Point's final determination calculation
memorandum dated November 13, 2001, for a complete discussion of this
issue.

Comment 4: Red Point and Lindy Bowman Affiliation

Red Point argues that the Department should find that Red Point and The
Lindy Bowman Company (Lindy Bowman) are affiliated within the meaning of
section 771(33)(G) of the Tariff Act of 1930, as amended (the Act), which
defines affiliated persons as including "any person who controls any other
person." Red Point further argues that the Statement of Administrative
Action (SAA) states that such control includes "close supplier
relationships in which the supplier or buyer becomes reliant upon the
other." SAA accompanying the URAA, H.R. Doc. No. 103-316, vol. 1 at 838
(1994). 

According to Red Point, the Department saw substantial evidence of this
close relationship at verification. Red Point contends that the Department
found at verification that Red Point and Lindy Bowman: 1) operate as a
single company, 2) share sales and cost information freely, 3) present
themselves as one company in a single exhibit in Hong Kong trade shows, 4)
meet periodically to discuss marketing strategies together, 5) are
sufficiently close that contracts are unnecessary. Red Point further
argues that all merchandise produced by Red Point is labeled with the
Lindy Bowman logo. Red Point also contends that Lindy Bowman does all of
the design work for the merchandise produced by Red Point and that Lindy
Bowman has performed other forms of assistance, such as technical service,
for Red Point. 

Citing Steel Concrete Reinforcing Bars from Latvia, 66 FR 33530 (June 22,
2001) (Rebar) and the accompanying Issues and Decision Memorandum at
Comment 1, Red Point argues that the Department has found two entities
affiliated under section 771(33)(G) of the Act by virtue of a close
buyer/supplier relationship. Red Point claims that, in Rebar, the
Department found that the two entities were affiliated because: 1) the two
entities made joint sales visits to U.S. customers, 2) the trading company
had an exclusive distribution contract for U.S. sales of the respondent's
product (which Red Point also alleges apparently was breached), and 3) the
trading company provided financing to the producer. See Rebar and the
accompanying Issues and Decision Memorandum at Comment 1. Red Point
contends that its relationship with Lindy Bowman is even closer than the
one that existed in Rebar because Red Point sells the subject merchandise
exclusively to Lindy Bowman, Lindy Bowman sells only subject merchandise
produced by Red Point, and Lindy Bowman provides the designs Red Point
uses in manufacturing the subject merchandise. Based on these facts, Red
Point argues that the Department should find that it is affiliated with
Lindy Bowman and use the verified Lindy Bowman sales to unaffiliated
companies in the margin calculation for Red Point. 

The petitioners argue that the Department should not find that Red Point
and Lindy Bowman are affiliated. According to the petitioners, Red Point
has failed to establish either that one party is reliant upon the other or
that either party is in a position to exercise control over the other. The
petitioners contend that the facts that led the Department to
preliminarily find that the two firms are not affiliated remain unchanged. 

The petitioners contend that the facts of this case provide less support
for a claim of reliance than did the facts in Notice of Preliminary
Determination of Sales at Less Than Fair Value: Solid Fertilizer Grade
Ammonium Nitrate From the Russian Federation, 65 FR 1139, 1143 (January 7,
2000) (Ammonium Nitrate), where the Department determined that a
respondent and an importer were not affiliated because: 1) there were
numerous producers and numerous importers of the subject merchandise, 2)
comparative sales of both companies did not establish reliance, and 3) the
length and terms of a contract between the companies did not establish
reliance. With regard to the first and third points, as they relate to the
instant case, the petitioners contend that there are numerous producers
and numerous importers of the subject merchandise in this investigation
and there are no contracts between Red Point and Lindy Bowman. With regard
to the second point, the petitioners cite a Court of International Trade
(CIT) decision in AK Steel Corporation v. United States, 34 F. Supp. 2d
756 (CIT 1998) (AK Steel), where the CIT upheld the Department's finding
there was no affiliation between two parties even though one of the
parties purchased the majority of its product from the other party. In AK
Steel, the petitioners claim, the CIT relied on an earlier Department
ruling in Notice of Preliminary Determination of Sales at Less than Fair
Value and Postponement of Final Determination: Melamine Institutional
Dinnerware Products from Indonesia, 61 FR 43333, 43335 (August 22, 1996)
(Dinnerware), stating that the Department "has declined to find
affiliation where a producer supplied 100 percent of its U.S. sales
through a single, unrelated U.S. importer but where the parties are free
to seek other business partners." AK Steel, 34 F. Supp. 2d at 769.

The petitioners further argue that neither Red Point nor Lindy Bowman are
in a position to exercise control over the other. The petitioners contend
that the Department's verification report did not state that it found that
Red Point and Lindy Bowman operate as a single company. The petitioners
allege that the fact that the two companies share information, make joint
presentations at trade shows and discuss marketing strategies does not
demonstrate that either party is in a position to control the other.
Further, the petitioners argue that there is no evidence that either
company could take legal acts for the other, that there is no evidence
that either company had unlimited access to proprietary business records
of the other company, and that there is no evidence of shared office
personnel. 

Department's Position: Section 771(33)(G) of the Act defines affiliated
persons as including "any person who controls any other person." (1)
Section 771(33) of the Act further states that "[f]or purposes of this
paragraph, a person shall be considered to control another person if the
person is legally or operationally in a position to exercise restraint or
direction over the other person."

The Department has stated that merely identifying "the presence of one or
more of the other indicia of control [as per section 771(33) of the Act]
does not end [the Department's] task." See Antidumping Duties;
Countervailing Duties: Notice of Proposed Rulemaking and Request for
Public Comments, 61 FR 7308, 7310 (February 27, 1996). The Department is
compelled to examine all indicia, in light of business and economic
reality, to determine whether they constitute evidence of control. In
determining whether control over another person exists within the meaning
of section 771(33) of the Act, the Department will consider the following
factors, among others: corporate or family groupings; franchise or joint
venture agreements; debt financing; and close supplier relationships.
However, the Department will not find affiliation on the basis of these
factors unless the relationship has the potential to affect decisions
concerning the production, pricing, or cost of the subject merchandise or
foreign like product. See 19 CFR 351.102(b).

We do not find the existence of an affiliation, as defined by the
statute, between Red Point and Lindy Bowman. First, Lindy Bowman and Red
Point have no stock ownership in each other, they do not share managers,
and there is no common familial ownership. See Red Point's July 13, 2001,
supplemental response at 6. 

Furthermore, we do not find that Red Point's relationship with Lindy
Bowman constitutes a "close supplier relationship" which would indicate
control by either party over the other. The SAA defines a close supplier
relationship as one where "the supplier or buyer becomes reliant upon the
other." SAA accompanying the URAA, H.R. Doc. No. 103-316, vol. 1 at 838
(1994); see also, Certain Cold-Rolled and Corrosion-Resistant Carbon Steel
Flat Products From Korea: Final Results of Antidumping Duty Administrative
Reviews, 62 FR 18404, 18417 (April 15, 1997) (Korean Steel). To establish
a close supplier relationship, the party must demonstrate that the
"relationship is so significant that it could not be replaced." See Korean
Steel, 62 FR at 18417.

In Korean Steel, the Department provided additional guidance regarding
close supplier relationships. Specifically, the Department established a
threshold requirement that, in order to find a close supplier
relationship, actual reliance between the companies must be found:

"Only if we make such a finding [of reliance] can we address the issue of
whether one of the parties is in a position to exercise restraint or
direction over the other. When the Preamble to our Proposed Regulations *
* * states that "business and economic reality suggest that these
relationships must be significant and not easily replaced," it suggests
that we must find significant indicia of control."

Korean Steel, 62 FR at 18417.

With respect to whether reliance exists in this case, the Department has
examined relevant information on the record of this investigation. As
discussed in the Red Point Preliminary Determination Analysis Memorandum
dated July 30, 2001, at page 3, we found that there are alternative
sources of supply of the subject merchandise and there is no information
on the record indicating that Lindy Bowman is precluded from purchasing
folding gift boxes from other suppliers. In addition, we found that there
are alternative sources of distribution of the subject merchandise, there
is no information on the record that suggest that Red Point is precluded
from selling to any of the other known U.S. importers of PRC-origin
folding gift boxes, and there is no information on the record that
demonstrates that Lindy Bowman holds a dominant position in the U.S.
marketplace such that Red Point would effectively be precluded from
selling to other U.S. importers. Id. Furthermore, there are no formal
contracts between the two companies that would provide evidence of
reliance. See Red Point verification report dated September 13, 2001, at
page 4. There has been no information or argument submitted since the
Preliminary Determination that causes us to reconsider these findings.

Based on the above factors, we do not find that reliance exists with
respect to the business relationship between Red Point and Lindy Bowman.
With regard to Red Point's contentions that the Department found at
verification that Red Point and Lindy Bowman operate as a single company,
we did not make any such finding. Rather, we noted at verification that
"Mr. Bowman told us ... that he and Red Point operate as a single
company." See Red Point verification report dated September 13, 2001, at
page 3.

Furthermore, the fact that Red Point and Lindy Bowman share sales and
cost information, present themselves as one company in a single exhibit in
Hong Kong trade shows, and plan marketing strategies together does
demonstrate that the two companies cooperate closely but does not
demonstrate either reliance of one upon the other or control of one
exercised by the other. Nor does the fact that all merchandise produced by
Red Point is labeled with the Lindy Bowman logo demonstrate affiliation,
as that appears merely to be a physical characteristic demanded by the
customer (i.e., Lindy Bowman). 

The fact that Lindy Bowman does all of the design work for the
merchandise produced by Red Point does not establish control or reliance
of one upon the other. As is the case with the logo, the designs provided
by Lindy Bowman are presumably a physical characteristic demanded by the
customer (i.e., Lindy Bowman). Furthermore, there is no evidence on the
record that Red Point could not create its own designs if it was necessary
for it to do so. We find that this is no different than, for example, an
original equipment manufacturer that needs custom-designed bearings and
that works closely with and provides designs to a bearing manufacturer. It
may be an example of close cooperation, but it does not establish reliance
or control.

With regard to the other forms of assistance that Lindy Bowman provided
for Red Point, we discussed why we determined that this did not establish
affiliation in the Red Point Preliminary Determination Analysis Memorandum
dated July 30, 2001, at page 3. 

Finally, Red Point's citation to Rebar is inapposite. In that case, among
the factors the Department cited in finding that an affiliation existed
between a respondent (LM) and a U.S. trading company were the facts that
the trading company had "an exclusive distribution contract for U.S. sales
of the respondent's product;" there were "negotiations between the
respondent, the trading company, and the trading company's parent bank to
finance a major overhaul of the respondent's production facilities,
requiring that LM share sensitive financial information and business
plans," a "provision of a large line of credit to finance the production
of rebar for sale to the United States through the trading company," and
"numerous visits of top managers of the trading company to LM, in the
company of U.S. customers, suggesting the sharing of customer information
(and, similarly, visits of top managers of LM to the United States, in the
company of top managers of the trading company, for purposes of meeting
with U.S. customers)." Rebar, and accompanying Issues and Decision
Memorandum at Comment 1. The only factor in this investigation that
parallels any of the factors in Rebar is the fact that Lindy Bowman and
Red Point present themselves as one company in a single exhibit in Hong
Kong trade shows. None of the other factors we used to find an affiliation
in Rebar has a genuine parallel in this case. Most importantly, as noted
above, there are no formal contracts between Lindy Bowman and Red Point.
Thus, although the proportions of sales between Red Point and Lindy Bowman
suggest that there may be reliance, there are no contracts or other legal
authority preventing Lindy Bowman from using other PRC suppliers or
preventing Red Point from selling to other U.S. customers. 

Thus, in the absence of any evidence of contractual or legal control,
these facts are not a sufficient basis for finding that reliance exists.
We also do not find that other evidence combined with this supply
relationship suffices to establish any type of control that would lead to
a finding of affiliation. Accordingly, we determine that Red Point and
Lindy Bowman are not affiliated as defined by the statute. Consequently,
we calculated the margin for Red Point based on its sales to Lindy Bowman
in the United States.

Comment 5: Red Point Selling, General, and Administrative Expenses and
Profit

Red Point argues that the Department should use Red Point's actual
selling, general, and administrative expense (SG&A) and profit experience
rather than rely on the Indian surrogate value which the Department used
in the Preliminary Determination. Red Point contends that it is the
Department's long-standing practice to value inputs incurred in market-
economy currencies in the currency in which the expense was incurred. Red
Point contends that all of its SG&A was incurred in market-economy
currencies. Red Point argues that there is nothing in the Department's
regulations to limit this practice to direct materials. Red Point argues
that the use of its actual expenses would be fairer and more accurate than
the use of the Indian surrogate values. Finally, Red Point contends that
neither the Indian nor the Indonesian financial statements on the record
provide an adequate surrogate for Red Point because both the Indian and
Indonesian producers are large conglomerates that make different products
than Red Point. Red Point concludes that the best methodology would be for
the Department to use Red Point's financial statements to calculate SG&A
and profit for Red Point. 

Red Point also contends that its depreciation expenses, which account for
the majority of its factory overhead, were also incurred in market-economy
currencies and argues that the Department should value its factory
overhead on the basis of its financial statements.

The petitioners argue that the Department should not adopt Red Point's
suggestion and observe that Red Point did not cite any instance where the
Department has determined not to use a surrogate-country for the valuation
of SG&A and profit in cases involving non-market economies. The
petitioners contend that profit is a function of the entire financial
operation of a company, including production costs. Thus, the production
costs, which include non-market economy inputs such as labor and energy,
have a bearing on the profit recorded in Red Point's accounting records.
In addition, the petitioners contend that Red Point's proposed methodology
would not account correctly for factory overhead.

The petitioners further contend that Red Point would have the Department
base SG&A on expenses which are partially incurred in Hong Kong and
partially incurred in the PRC. The petitioners argue that, if the
Department were to adopt this methodology, parties could argue over every
SG&A expense as to whether it was a market-economy expense. The
petitioners allege that the result of SG&A expenses being treated as
market-economy expenses and others as non-market-economy expenses would
cause great administrative difficulties.

Finally, the petitioners argue that the Department is not limited to
selecting financial statements from companies that only produce the
subject merchandise but can use financial data from companies that produce
comparable merchandise. The petitioners contend that the Indian producer
the Department used in its preliminary analysis is a manufacturer of
folding boxes. Thus, the petitioners conclude, the Department should
continue to use the Indian producer's data for its final determination.

Department's Position: We have not used the SG&A or profit from Red
Point's financial statements for our final determination. As the
petitioners observe, Red Point obtained some of its production inputs,
including labor, energy, and some material inputs, from non-market-economy
sources. We do not value these production inputs at the price Red Point
paid to its non-market-economy suppliers because the presence of
government controls on various aspects of the economy renders price
comparisons and the calculation of production costs invalid under our
normal methodologies. See, generally, sections 771(18) and 773(c) of the
Act. Thus, because Red Point's profit is calculated by subtracting its
costs, including these production costs, from its revenues, any profit
figure we calculated would be equally invalid. 

With regard to SG&A expenses, contrary to Red Point's contention, it is
clear from Red Point's financial statements that many of these expenses
were incurred in the PRC in renminbi. See the Red Point verification
report dated September 13, 2001 at Exhibit 2, wherein many of the general
and administrative expenses recorded on Red Point's financial statements
have a "C-" prefix, and at page 8, which states that "'C-transportation'
and 'C-declaration' are freight expenses incurred in renminbi." Thus,
while the expenses are recorded in Red Point's financial statements in
Hong Kong dollars, the expenses were incurred in renminbi. (2) Red Point
simply converted the expenses using an exchange rate between renminbi and
Hong Kong dollars. 

In order to adopt Red Point's suggestion that we calculate SG&A on the
basis of its financial statements, we would have to calculate SG&A
incurred in Hong Kong dollars on the basis of its financial statements and
then calculate a surrogate for the SG&A incurred in renminbi. However,
many expenses are incurred in both Hong Kong dollars and renminbi. See Red
Point verification report dated September 13, 2001 at Exhibit 2. Thus, we
would have to attempt to value a portion of Red Point's expenses using its
financial statements and value the other portion using a surrogate. It is
unclear whether this is possible to do in a meaningful manner given the
inherent unreliability of the expenses incurred in renminbi. As a result,
we conclude that it is impossible to calculate a meaningful SG&A figure
based on Red Point's financial statements. Therefore, we have calculated
SG&A for Red Point based on the Indian surrogate.

With regard to factory overhead expenses, it is not clear from the record
that the methodology Red Point suggests would capture all appropriate
factory overhead expenses. While it may be the case that the machinery Red
Point used was purchased from market-economy suppliers, it is not clear
that using this depreciation would account for substantially all overhead
costs, including the cost of either factory-building depreciation or
leasing the factory building. Nor can we segregate machinery depreciation
from other depreciation in the surrogate overhead data so as to use
surrogate costs only for other overhead costs.

In addition, even if it were the case that Red Point incurred all of its
SG&A and factory overhead expenses in market-economy countries and paid
these expenses in market-economy currencies, it would still be
inappropriate to allocate these expenses based on Red Point's financial
statements. In order to use data from Red Point's financial statements, we
would have to calculate ratios of Red Point's total SG&A and total factory
overhead expenses divided by Red Point's total production costs, then
apply such ratios to per-unit production costs based in large part on
surrogate values. As we described above, Red Point obtained some of its
production inputs, including labor, energy, and some material inputs, from
non-market-economy sources. We do not value these production inputs at the
price Red Point paid to its non-market-economy suppliers because the
prices are not based on market principles, rendering the calculation of
production costs unreliable and invalid under our normal methodologies.
See, generally, sections 771(18) and 773(c) of the Act. Thus, any expense
ratio that we calculated on the basis of these production costs would be
equally unreliable and invalid. Further, it would not be appropriate to
apply such a ratio to a cost based on surrogate values. 

We agree, in principle, with Red Point that it would be preferable to
use, as a surrogate, the financial data of a company that only produces
merchandise identical to the subject merchandise instead of the data of a
company that produces other merchandise. In addition, we agree, in
principle, that it would be preferable to use actual expenses rather than
surrogate expenses when the use of actual expenses is practicable. In this
investigation, however, Red Point's financial data does not permit us to
calculate meaningful figures for the reasons described above. Because the
Indian producer we used as a surrogate in the Preliminary Determination
produces merchandise comparable to the subject merchandise, it is
reasonable to use that producers's financial data. Therefore, for this
final determination, we have continued to rely on the financial data of
the Indian producer to calculate factory overhead, SG&A, and profit for
Red Point. 

Comment 6: Red Point Electricity Valuation

Red Point argues that the Department should use a different surrogate
value for electricity for Red Point than it used in the Preliminary
Determination. Red Point observes that the Department's surrogate values
for electricity vary depending on the size of the company and argues that
it is more accurately characterized as a different-size company than the
size the Department assumed for the Preliminary Determination.

Department's Position: We agree with Red Point in part. We found at
verification that Red Point's electricity usage falls between the usage of
a company the size that Red Point claims it should be characterized as and
a company the size that we characterized Red Point as for the Preliminary
Determination. See Red Point verification report dated September 13, 2001,
at page 14 and Factor Valuation Memorandum dated July 30, 2001, at Exhibit
6. Because Red Point's electricity usage is significantly higher than the
size of company that Red Point claims to be, we find it would be
inappropriate to use the electricity rate Red Point suggests we use.
Conversely, because Red Point's electricity usage is significantly lower
than that of the size of company that we characterized Red Point for the
Preliminary Determination, we find it would be inappropriate to use the
rate we used in the Preliminary Determination. Therefore, for this final
determination, we have calculated the simple average of the rates that Red
Point suggests we use and the rate that we used in the Preliminary
Determination and used the resulting average rate to value Red Point's
electricity use. See the Red Point final analysis memorandum dated
November 13, 2001, for proprietary details.

RECOMMENDATION:

Based on our analysis of the comments received, we recommend adopting all
of the above changes and positions, and adjusting the margin calculation
programs accordingly. If accepted, we will publish the final results of
the investigation and the final weighted-average dumping margins in the
Federal Register.

AGREE___________ DISAGREE___________

__________________________________________

Faryar Shirzad
Assistant Secretary 
  for Import Administration

__________________________________________
Date 

__________________________________________________________________________
footnotes:

1. Red Point does not argue that there is a basis for affiliation with
respect to the statutory definitions under section 771(33), subsections
(A) through (F). 

2. See also Red Point's October 2, 2001, case brief, footnote 16, at page
19.